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Material Participation
Section 469(h)(1) provides that generally an individual
shall be treated as materially participating in an activity only
if he or she is involved in the operations of the activity on a
basis that is "regular", "continuous", and "substantial".
Congress directed the Secretary of the Treasury (Secretary) to
prescribe such regulations as may be necessary or appropriate to
carry out the provisions of section 469, including regulations
that specify what constitutes material participation. Sec.
469(l)(1). Both temporary and final regulations relating to the
meaning of the terms "participation" and "material participation"
have been promulgated under section 469.
The term "participation" means generally "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".
Sec. 1.469-5(f)(1), Income Tax Regs. Temporary regulations
issued under section 469 provide certain exceptions to the
definition of participation. One particular provision, section
1.469-5T(f)(2)(ii), Temporary Income Tax Regs., 53 Fed. Reg. 5727
(Feb. 25, 1988), provides that work done by an individual in the
capacity of 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
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Last modified: May 25, 2011