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petitioners’ operations at the Lake Arrowhead property during
each year in issue constitute an activity that is treated as a
trade or business under section 469(c)(6). Consequently,
petitioners’ operations at the Lake Arrowhead property will
constitute a passive activity under section 469(c)(1) unless
petitioners establish that they materially participated in that
activity during the taxable years in issue. Petitioners argue in
the alternative that the activities related to the Lake Arrowhead
property were not a passive activity under section 469(c)(1)
because petitioners met the material participation requirements.
Material participation is defined as involvement in the
operations of the activity that is regular, continuous, and
substantial. Sec. 469(h)(1). As explained in section 1.469-
5T(a), Temporary Income Tax Regs., 53 Fed. Reg. 5696 (Feb. 25,
1988), a taxpayer can satisfy the material participation
requirement if the individual meets any one of the seven
regulatory tests:
(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 individuals who are not owners of interests
in the activity) for such year;
(3) The individual participates in the activity for
more than 100 hours during the taxable year, and such
individual’s participation in the activity for the
taxable year is not less than the participation in the
activity of any other individual (including individuals
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