The hybrid nature of limited liability companies (and limited liability partnerships)1 has contributed to uncertainty as to how the passive activity loss rules2 are to be applied to LLCs and LLPs as well as other hybrid-type organizational structures. Limited liability companies, in particular, have become a highly popular choice for organizing farm and ranch businesses and for holding real estate leased to farm and ranch businesses. A 2005 Tax Court case3 has cast some light on how the passive activity loss rules are to be applied to such hybrid entities.



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