Question

Rick, a computer consultant, owns a separate business (not real estate) in which he participates. He has one employee who works part-time in the business. No ones else works in the business. Which of the following is INCORRECT regarding that business.

a. If Rick participates for 400 hours and the employee participates for 420 hours during the year, Rick qualifies as a material participant.

b. If Rick participates for 550 hours and the employee participates for 2,000 hours during the year, Rick qualifies as a material participant.

c. If Rick participates for 120 hours and the employee participates for 120 hours during the year, Rick does not qualify as a material participant.

d. If Rick participates for 95 hours and the employee participates for 5 hours during the year, Rick probably does not qualify as a material participant.

e. All of the above

Answer 1

Material Participation = Participating more than 500 hours in the business throughout the year or Participating more than 100 hours during the year but not less than of any other persons participation.

Correct Answer : Option B)  If Rick participates for 550 hours and the employee participates for 2,000 hours during the year, Rick qualifies as a material participant.

No other option fulfills the criteria. as in option A) Rick participating less than 500 hours and if we consider other situation than in that condition also he is participating less than employees participation.

as in option C) Rick participating less than 500 hours and if we consider other situation than in that condition also he is participating equal to employees participation. He must participate more than Employees participation.

as in option D) Rick participating less than 500 hours & 100 hours. so he is not eligible to be considered as Material participation..