SELF-CHARGED FEES PRODUCE TAXABLE INCOME.David Hillman Hillman was a famous British automobile marque, manufactured by the Rootes Group. It was based in Ryton-on-Dunsmore, near Coventry, England, from 1907 to 1976. Before 1907 the company had built bicycles. owned substantially all the stock of an S corporation that charged real estate management fees to approximately ap·prox·i·mate
1. Almost exact or correct: the approximate time of the accident.
2. 90 other passthrough entities involved in real estate rental RENTAL. A roll or list of the rents of an estate containing the description of the lands let, the names of the tenants, and other particulars connected with such estate. This is the same as rent roll, from which it is said to be corrupted. activities. Hillman also owned interests in these other entities. He materially participated in the corporation's management activities but did not participate in the entities' activities.
Hillman included his share of the corporation's nonpassive fee income in his gross income. He then offset this income by his share of the entities' passive fee expenses.
The IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. disallowed the offset, which the Tax Court overruled. In April, the Fourth Circuit Court of Appeals, reversed the Tax Court and sustained the IRS--even though Hillman essentially paid these fees to himself.
In contrast, Prop. Regs. Sec. 1.469-7 allows self-charged interest expense to be offset against the corresponding interest income.