The Small Business and Work Opportunity Act of 2007 (Act) included a provision that allows some husband-wife business ventures to elect out of the partnership rules for federal tax purposes as a qualified joint venture (QJV). While the election will ease the tax reporting requirements for husband-wife joint ventures that can take advantage of the election, the Act also makes an important change to I.R.C. §1402 as applied to rental real estate activities that can lay a trap for the unwary. Thus, it is important to consider the situations in which a QJV election may be a good planning move, and when the election should be avoided.
Also, a recent Tax Court case has shed additional light on whether a farm taxpayer can satisfy the USDA’s active engagement test for payment limitation purposes without being engaged in the trade or business of farming for self-employment tax purposes. That rationale of that case also has implications concerning the use of the QJV election in spousal situations.