Question

C.590. 3. Paula owns four separate activities. She elects not to group them together as a single activity under the "appropriate economic unit" standard. Paula participates for 130 hours in Activity A, 115 hours in Activity B, 260 hours in Activity C, and 100 hours in Activity D. She has one employee, who works 125 hours in Activity D. Which of the following statements is correct? a. Activities A, B, C, and D are all significant participation activities. b. Paula is a material participant with respect to Activities A, B, C, and D. c. Paula is not a material participant with respect to Activities A, B, C, and D. d. Losses from all of the activities can be used to offset Paula's active income. e. None of these is correct.

Answer 1

Answer is E (none of these is correct)

Explanation:

Activities A, B and C are all significant participation activities , but activity D is not because significant participation is considered when individual participation exceeds 100 hours during the year. In activities A, B and C material participation standard are met because total participation in significant participation activities is (130+115+260) exceeds 500 hours.