I will provide some comments:
- In the analogy of a C corporation, the hobby loss rules do not apply to C corporations, so the "netting" is moot.
- You would have the same issue if the entity were an S corporation as the statute specifically notes S corporations (most likely to differentiate the structure from that of a C corporation).
- Your facts indicate that the business of the LLC is to manage the subsidiaries. That appears to be a trade or business activity.
- I am sure you have reviewed Treasury Regulation 1.183-2 and the nine areas that the IRS would look to if questioned.
- Section 183 and the related regulations have been close to unchanged since the early seventies. Therefore the nearly 50 years of case law remains relevant.
- While your facts don't speak to the investments side (other than indicating it doesn't qualify as a trader), were the investments purchased with prior profits / gains (excess cash not distributed to the members)?
- The investment portion is portfolio and will not be considered in looking at the hobby loss rules.
- Unfortunately, Section 183, as in many other areas, will be determined on your specific set of facts and circumstances.
- Don't know if you have reviewed Publication 5558 "Activities Not Engaged in for Profit Audit Technique Guide".
- Also take a look at Stephen Whatley TCM 2021-11. While this is only a memo decision, it provides a good summary of the decision making process.
*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.
