SECTION 1. PURPOSE — Internal Revenue Bulletin 2002-14

This revenue procedure specifies the conditions under which the Internal Revenue Service will consider a request for a ruling that an undivided fractional interest in rental real property (other than a mineral property as defined in section 614) is not an interest in a business entity, within the meaning of § 301.7701–2(a) of the Procedure and Administration Regulations.

This revenue procedure supersedes Rev. Proc. 2000–46 (2000–2 C.B. 438), which provides that the Service will not issue advance rulings or determination letters on the questions of whether an undivided fractional interest in real property is an interest in an entity that is not eligible for tax-free exchange under

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federal tax purposes. Among the factors that influenced the court’s decision were the limitations on the co-owners’ ability to sell, lease, or encumber either the co-ownership interest or the underlying property, and the manager’s effective participation in both profits (through the remarketing fee) and losses (through the advances). Bergford, 12 F.3d at 169–170. Accord Bussing v. Commissioner, 88 T.C. 449 (1987), aff’d on reh’g, 89 T.C. 1050 (1987); Alhouse v. Commissioner, T.C. Memo. 1991–652.

Under § 1.761–1(a) and §§ 301. 7701–1 through 301.7701–3, a federal tax partnership does not include mere co-ownership of property where the owners’ activities are limited to keeping the property maintained, in repair, rented or leased. However, as the above authorities demonstrate, a partnership for federal tax purposes is broader in scope than the common law meaning of partnership and may include groups not classified by state law as partnerships. Bergford, 12 F.3d at 169. Where the parties to a venture join together capital or services with the intent of conducting a business or enterprise and of sharing the profits and losses from the venture, a partnership (or other business entity) is created. Bussing, 88 T.C. at 460. Furthermore, where the economic benefits to the individual participants are not derivative of their co-ownership, but rather come from their joint relationship toward a common goal, the co-ownership arrangement will be characterized as a partnership (or other business entity) for federal tax purposes. Bergford, 12 F.3d at 169.