Question

describe the seven tests for material participation

Answer 1

ANSWER:

Following are the seven tests for material participation:

• Test 1: test that the taxpayer works for more than 500 hours.
• Test 2: test that the taxpayer does all the work substantially in the activity
• Test 3: test that there is involvement for more than 100 hours by the taxpayer and and nobody else works more than the taxpayer.
• Test 4: test that the activity is a significant participation activity (SPA). Furthermore, the sum of SPAs in which the taxpayer works 100 to 500 hours is more than 500 hours for the year
• Test 5: test that the taxpayer has participated during any five of the preceding ten taxable years.
• Test 6: test that the activity is a personal service activity, for any three prior taxable years
• Test 7: test that if the taxpayer works at least 100 hours in the activity and based on all the facts and circumstances, taxpayer participates on a regular, continuous, and substantial basis.