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:: Passive Activity Loss ATG - Exhibit 4.2: Material Participation Decision Tree
Exhibit 4.2:
Material
Participation
Decision Tree
Reg. 1.469-5T(a)
Is the taxpayer a
material participant
in a business
activity?
Decision
Tree
If
answer to any one is
yes, losses are
excepted from the
passive loss
limitations and
generally fully
deductible.
-
Did the
taxpayer
work more
than 500
hours in the
activity
during the
year?
-
Did TP
perform
substantially
all the work
in the
activity?
-
Did TP work
more than
100 hours
and more
than anyone
else
(including
non-owners)?
-
Did the
taxpayer
work more
than 100
hours, but
less than
500, in two
or more
businesses
and the sum
of all the
hours in
these
businesses
is more than
500?
-
Did the
taxpayer
materially
participate
in the
activity for
any five of
the last ten
years?
-
If the
activity is
a personal
service
activity,
did the
taxpayer
materially
participate
for any
three prior
years?
-
Under all
the facts
and
circumstances,
did the
taxpayer
work on a
regular,
continuous
and
substantial
basis in the
activity?
This test is
not
available if
anyone was
paid
compensation
in
connection
with
management
of the
activity.
If
answer to all the
above tests is
no,
the taxpayer does
not materially
participate. The
loss is passive and
not deductible in
the absence of
passive income.
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