In 2014, Annie Cook and several family members formed Treehouse Rentals, Inc., in Denver, Colorado. Treehouse is a closely held C corporation engaged in the rental real estate business. Treehouse properly classifies its activities as passive. In 2014, 2015, and 2016, the corporation

generated net passive losses of ($380,000), ($145,000), and ($194,000), respectively, all of which were properly suspended.

Effective January 2017, Treehouse elected to be taxed as an S corporation. Also during 2017, Treehouse sold two pieces of rental real estate property. The suspended losses related to these properties were ($63,000) and ($112,000).

Write a memo to Treehouse Rentals explaining the tax treatment of the disposition of the rental properties in 2017.

• Sec. 469, Sec. 1371

• TAM 9628002

• St. Charles Investment Co. v. Comm., 86 AFTR 2d 2000-6882 (CA 10, 11/14/2000)