Barry H. and Marilyn S. Scheiner - Page 8

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                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."  Sec.                      
                1.469-5(f)(1), Income Tax Regs.  Temporary regulations                       
                issued under section 469 provide certain exceptions to                       
                that definition of participation.  As pertinent here,                        
                section 1.469-5T(f)(2)(ii)(A), Temporary Income Tax                          
                Regs., 53 Fed. Reg. 5727 (Feb. 25, 1988), provides that                      
                work done by an individual in such individual's                              
                capacity as an investor in an activity shall not be                          
                treated as participation by the individual in the                            
                activity unless the individual is involved in the day-                       
                to-day management or operations of the activity.  For                        
                this purpose, work done by an individual in such                             
                individual's capacity as an investor in an activity                          
                includes:                                                                    
                           (1) Studying and reviewing financial                              
                     statements or reports on operations of the                              
                     activity;                                                               
                           (2) Preparing or compiling summaries or                           
                     analyses of the finances or operations of the                           
                     activity for the individual's own use; and                              
                           (3) Monitoring the finances or                                    
                     operations of the activity in a non-                                    
                     managerial capacity.  [Sec. 1.469-                                      
                     5T(f)(2)(ii)(B), Temporary Income Tax Regs.,                            
                     supra.]                                                                 
                     Temporary regulations relating to the meaning of                        
                the term "material participation" in section 469(h)(1)                       
                provide that, in general,                                                    
                     an individual shall be treated, for purposes                            
                     of section 469 and the regulations                                      
                     thereunder, as materially participating in an                           
                     activity for the taxable year if and only                               
                     if--                                                                    
                           (1)  The individual participates in the                           
                     activity for more than 500 hours during such                            
                     year;                                                                   
                           (2)  The individual's participation in                            
                     the activity for the taxable year constitutes                           
                     substantially all of the participation in                               
                     such activity of all individuals (including                             



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