Dena owns interests in five businesses and has full-time employees in each business. She participates for 100 hours in Activity A, 120 hours in Activity B, 130 hours in Activity C, 140 hours in Activity D, and 125 hours in Activity E.
A) All five of Dena's activities are significant participation activities.
B) Dena is a material participant with respect to all five activities.
C) Dena is not a material participant in any of the activities.
D) Dena is a material participant with respect to Activities B, C, D, and E.
E) None of the above.

Question

Quizplus · Accepted Answer

According to the IRS, a material participant is someone who participates in an activity in a significant way. To determine material participation, the IRS considers the number of hours a person actively participates in the activity during the year. In this scenario, Dena has participated for over 100 hours in all five activities, which makes them all significant. However, material participation is specific to each activity. Therefore, as Dena has participated for over 100 hours in Activity B, C, D, and E, she is a material participant with respect to those activities only.

Dena Owns Interests in Five Businesses and Has Full-Time Employees