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rule, like the current rule, applied where property was rented to
an “activity” in which the taxpayer materially “participates”.
The 1988 temporary regulations didn’t define “activity”.
See sec. 1.469-4T, Temporary Income Tax Regs., 53 Fed. Reg. 5686,
5725 (Feb. 25, 1988), which stated in full: “Definition of
activity (temporary). [Reserved]”. They did, however, contain a
regulation entitled “Material participation”, which defined both
“participation” and the kind of participation deemed to be
material. Sec. 1.469-5T, Temporary Income Tax Regs., 53 Fed.
Reg. 5686, 5725-5728 (Feb. 25, 1988). The participation
definition in section 1.469-5T of the 1988 temporary regulations
provided:
(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 such work) in connection with
an activity in which the individual owns (directly or
indirectly, other than through a C corporation) an
interest at the time the work is done shall be treated
for purposes of this section as participation of such
individual in the activity. [Sec. 1.469-5T(f)(1),
Temporary Income Tax Regs., 53 Fed. Reg. 5686, 5726
(Feb. 25, 1988); emphasis added.]
The second parenthetical of this 1988 definition clearly
provided that an individual shareholder did not participate (and
thus could not materially participate) in the activities of his C
corporations.11 As a result, under the 1988 temporary
11 Unless the shareholder also owned a passthrough interest
in the C corporation’s activity, through which he could be
considered to participate. See sec. 1.469-5T(k), Examples (1)
(continued...)
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