SECTION 2. BACKGROUND

Section 761(a) of the Internal Revenue Code provides that, under regulations, the Secretary may, at the election of all of the members of an unincorporated organization, exclude such organization from the application of all or part of subchapter K of chapter 1, subtitle A of the Code, if the income of the members of the organization may be adequately determined without the computation of partnership taxable income and the organization is availed of (1) for investment purposes only and not for the active conduct of a business, (2) for the joint production, extraction, or use of property, but not for the purpose of selling services or property produced or extracted, or (3) by dealers in securities for a short period for the purpose of underwriting, selling, or distributing a particular issue of securities.

Section 1.761–2(a)(2) provides that, where the participants in the joint purchase, retention, sale, or exchange of investment property: (i) own the property as coowners, (ii) reserve the right separately to take or dispose of their shares of any property acquired or retained, and (iii) do not actively conduct business or irrevocably authorize some person or persons acting in a representative capacity to purchase, sell, or exchange such investment

property, although each separate participant may delegate authority to purchase, sell, or exchange the participant’s share of any such investment property for the time being for the participant’s account, but not for a period of more than one year, then the group may be excluded from the application of the provisions of subchapter K under the rules set forth in § 1.761–2(b).