... redeems is an interest in a passive activity, Section 469(g) re-characterizes a loss on the exchange, and suspended passive activity losses (PAL) from the activity, as losses not from a passive activity, thus freeing up the suspended losses. However, when the taxpayer and the S corporation are related...

... forward as a passive loss to subsequent years. Under Section 469(g), a taxpayer's suspended passive losses from an activity are freed up when the taxpayer sells his entire interest in the activity to an unrelated person in a fully taxable transaction. However, if the sale is to a related party...