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Passive losses from that and other activities are combined on the individual tax return - form 8582
On form current year passive losses are combined with prior year un-allowed passive losses.
And those which are carried forward to following years are calculated and reported
Here is the form
You need to re-calculate all prior disallowed passive losses.
If you are using prior disallowed passive losses - and these losses were not reported on prior tax returns - you will need to attach a statement with explanation of facts and reasoning.
For that purpose - you may use form 8275
According to instructions
- Form 8582 is filed by individuals, estates, and trusts who have passive activity deductions (including prior year unallowed losses).
Purpose of Form - Form 8582 is used by noncorporate taxpayers to figure the amount of any passive activity loss (PAL) for the current tax year and to report the application of prior year unallowed PALs.
According to you reference -
IF your client had "any prior year unallowed losses" - the IRS would GENERALLY require to file form 8582 starting 2011.
Your situation doesn't meet listed exceptions - and because of that your interpretation doesn't seem correct.