@AmeliesUncle you may want to clarify your response as the PAL rules can apply to closely held C corporations.
The only types of C corporations subject to the passive loss rules are personal service corporations (PSCs) and closely held corporations (CHCs). The passive loss rules apply to PSCs in the same manner as they do to individuals. But a special rule for CHCs allows passive losses to offset net active income. Thus, the effect of Section 469 on a CHC is that only portfolio income cannot be offset by passive losses. A corporation that meets both definitions (CHC and PSC) may not avail itself of the special rule to offset passive loss against active income.
A corporation is a “closely held corporation” (CHC) if at any time during the last half of the tax year more than 50% of the value of its outstanding stock is owned, directly or indirectly, by or for not more than five individuals, and the corporation is not a personal service corporation.
So it is possible that the PAL rules could apply to a CHC but not to an S corporation.
*A reminder that posts in a forum such as this do not constitute tax advice. Also keep in mind the date of replies, as tax law changes.
