Code of Federal Regulations Title 26. Internal Revenue § 26.1.469–5 Material participation

(f) Participation—(1) In general. Except as otherwise provided in this paragraph (f), any work done by an individual (without regard to the capacity in which the individual does the work) in connection with an activity in which the individual owns an interest at the time the work is done shall be treated for purposes of this section as participation of the individual in the activity.

(f)(2) to (h)(2) [Reserved]

(h)(3) Coordination with rules governing the treatment of passthrough entities. If a taxpayer takes into account for a taxable year of the taxpayer any item of gross income or deduction from a partnership or S corporation that is characterized as an item of gross income or deduction from an activity in which the taxpayer materially participated under § 1.469–2T(e)(1), the taxpayer is treated as materially participating in the activity for the taxable year for purposes of applying § 1.469–5T(a)(5) and (6) to any succeeding taxable year of the taxpayer.

(j) Material participation for preceding taxable years—(1) In general. For purposes of § 1.469–5T(a)(5) and (6), a taxpayer has materially participated in an activity for a preceding taxable year if the activity includes significant section 469 activities that are substantially the same as significant section 469 activities that were included in an activity in which the taxpayer materially participated (determined without regard to § 1.469–5T(a)(5)) for the preceding taxable year.

(2) Material participation for taxable years beginning before January 1, 1987. In any case in which it is necessary to determine whether an individual materially participated in any activity for a taxable year beginning before January 1, 1987 (other than a taxable year of a partnership, S corporation, estate, or trust ending after December 31, 1986), the determination shall be made without regard to paragraphs (a)(2) through (7) of this section.