Leaderboard

I too have been confused by the different meanings of "passive income." The definition for the passive activity loss rules is different than for investment income or foreign tax credit, for example. For the passive activity loss rules, only rental income and income from activities in which the taxpayer does not materially participate are considered passive income. Investment income, like from a hedge fund or PTP, is portfolio income, not passive income for this purpose. For the net investment income rules, just about any income not derived from a trade or business is counted. Thus mutual fund income, not passive for passive activity loss rules, is counted as investment income, as is rental income even if the taxpayer materially participates (exception for RE professionals). Read every question on the input screen carefully. The same income has to be classified twice, once for the passivity activity loss rules and again for the net investment income rules, and the class can very well be different. Can anyone say the tax code needs reforming?

From the IRS at the Nationwide Forum in Chicago - Other than those that receive Form 1095-A, there is no process in place to match or verify the information provided by others. In other words, the IRS will not match, check or hold preparers accountable for that question in 2014. I asked Karen Hawkins this question directly, and that is the answer she gave. In addition... "If the IRS does not have a method to check the answers, we cannot hold the preparer responsible for incorrect answers given by taxpayers. Therefore, since there is no documentation available for this question (other than those that receive insurance through a Marketplace) there is nothing for you to document for tax year 2014. My process for tax year 2014 is to simply ask the question, and enter the answer given.

Does this help? From Pub 925: http://www.irs.gov/publications/p925/ar02.html#en_US_2013_publink1000104579 Passive Activity Income Passive activity income includes all income from passive activities and generally includes gain from disposition of an interest in a passive activity or property used in a passive activity. Passive activity income does not include the following items: Income from an activity that is not a passive activity. These activities are discussed under Activities That Are Not Passive Activities , earlier. Portfolio income. This includes interest, dividends, annuities, and royalties not derived in the ordinary course of a trade or business. It includes gain or loss from the disposition of property that produces these types of income or that is held for investment. The exclusion for portfolio income does not apply to self-charged interest treated as passive activity income. For more information on self-charged interest, see Self-charged interest , earlier. Personal service income. This includes salaries, wages, commissions, self-employment income from trade or business activities in which you materially participated, deferred compensation, taxable social security and other retirement benefits, and payments from partnerships to partners for personal services. Income from positive section 481 adjustments allocated to activities other than passive activities. (Section 481 adjustments are adjustments that must be made due to changes in your accounting method.) Income or gain from investments of working capital. Income from an oil or gas property if you treated any loss from a working interest in the property for any tax year beginning after 1986 as a nonpassive loss, as discussed in item (2) under Activities That Are Not Passive Activities , earlier. This also applies to income from other oil and gas property the basis of which is determined wholly or partly by the basis of the property in the preceding sentence. Any income from intangible property, such as a patent, copyright, or literary, musical, or artistic composition, if your personal efforts significantly contributed to the creation of the property. Any other income that must be treated as nonpassive income. See Recharacterization of Passive Income , later. Overall gain from any interest in a publicly traded partnership. See Publicly Traded Partnerships (PTPs) in the instructions for Form 8582. State, local, and foreign income tax refunds. Income from a covenant not to compete. Reimbursement of a casualty or theft loss included in gross income to recover all or part of a prior year loss deduction, if the loss deduction was not a passive activity deduction. Alaska Permanent Fund dividends. Cancellation of debt income, if at the time the debt is discharged the debt is not allocated to passive activities under the interest expense allocation rules. See chapter 4 of Publication 535, Business Expenses, for information about the rules for allocating interest.

Oh, yes, the tax is always theirs.

I'm going to charge an amount that's fair to me for my time and effort learning about ACA for those new forms. And, I might raise the amount I charged last year for the then-new NII forms. I might even raise prices for anyone who sends me tax information after a certain date, maybe 15 March, whether or not I put them on extension.