The Tax Court held that a doctor was correct in recategorizing income from nonpassive to passive and the IRS could not regroup the doctor’s plastic surgery activity with his investment in a business entity that rents out surgical space. However, because the issue was not previously raised, the doctor was not entitled to use that recharacterized passive income to offset prior year passive losses. Finally, because the doctor was an investor in the surgical space rental activity and was not involved in the operations of the business, his distributive share of income from that business was not subject to self-employment tax. Hardy v. Comm’r, T.C. Memo. 2017-16.