Material Participation as Significant Participation Activity

A  recent case serves as a convenient reminder for 2020 tax return elections. In Gurpreet S. Padda, et al. v. Comm’r (TCM 2020-154), a physician met the test for significant participation activities with respect to several restaurants and a brewery in which he was a substantial owner. The entities were established as limited liability companies; although the physician operated several medical facilities and clinics, he was able to prove that he devoted substantial time and efforts to the restaurants and brewery.

Passive Activities 

IRC section 469(c) defines passive activities as including any trade or business in which the taxpayer does not materially participate. The Tax Court discussed that material participation requires the performance of regular, continuous, and substantial services in the activity—which can be established by satisfying any one of seven tests enumerated in the …