Treasury Will Consider Lawmakers' Comments on Implementation of Net Investment Income Tax Regs

Thank you for your letter regarding the treatment of income from equipment sales and rental businesses under section 1411 of the Internal Revenue Code (the Code).

Final regulations under section 1411 were issued on November 26, 2013, providing guidance on the application of the Net Investment Income Tax and the computation of Net Investment Income. These regulations reflect a general principle that, rather than create entirely new rules for implementing section 1411 (which is in chapter 2A of the Code), the basic income tax rules of chapter 1 of the Code generally apply for purposes of section 1411. In other words, items are treated similarly for purposes of determining whether they are subject to income tax and whether they are subject to the tax on net investment income. Thus, the determination of whether businesses such as equipment rental activities are subject to section 1411 depends on treatment of the rental income for purposes of chapter 1. In particular, similar rules apply to items subject to passive loss and passive income rules.

At the same time as the publication of these final regulations, Treasury and the Internal Revenue Service also issued proposed regulations addressing additional issues on which public comment is sought. The preamble to these proposed regulations specifically requests comments about other aspects of section 1411 that are not addressed in either the final regulations or the accompanying proposed regulations. We appreciate receiving your comments on the need for further clarification of the treatment of companies that rent heavy equipment for relatively long periods and will take your suggestions into account as we consider future guidance to implement section 1411. As suggested above, changes to address these issues may necessitate possible changes to the chapter 1 rules, which could have negative implications for treatment under the individual income tax.

Thank you for your interest in this important matter. If you have further questions, please contact the Office of Legislative Affairs at (202) 622-1900.