WE DELIVER SPECIALIZED TAX SOLUTIONS THE PROBLEM THE SOLUTION Suspended Tax Losses Due to the Material Participation Rules The Material Participation Time Study IRS AUDITS & APPEALS TAX ADVICE & PLANNING Get in touch 832-915-1040 www.materialparticipation.com 5847 San Felipe, Houston TX Given the passive activity loss rules, business and rental owners must materially participate in order to deduct their business or rental losses in the current year. The tax rules provide several time-based tests to determine whether a taxpayer materially participates. Some taxpayers assume that they will be able to substantiate their activities if needed. They do not consider how difficult it is to substantiate activities that happened several years in the past. This is what the IRS will expect the taxpayer to be able to do on audit. Others take the position that they do not materially participate, even when they do, knowing that they would not be able to document their activities. Many tax practitioners provide similar advice to their clients. The Time-Based Tests to Determine Material Participation A business or rental owner is treated as materially participating if he is involved in the operations of the activity on a regular basis. There are seven exclusive tests for evaluating this. Three of these tests are that the owner participates: 1. In the activity for more than 100 hours during the year and no one else participates more than the owner. 2. In the activity for more than 500 hours during the year. 3. In two or more businesses or activities in the aggregate more than 500 hours during the year,with at least two of the activities with more than 100 hours during the year, but the owner does not participate in each individual activity separately more than 500 hours during the year. Business and rental owners generally have to qualify under one of these time-based tests. The benefit is not limited to taxpayers in a particular industry. Taxpayers in nearly every industry can benefit. This includes individuals that operate their businesses or rentals as disregarded entities, general and limited partner in partnerships, and members of S corporations. Taxpayers who benefit will own a business and/or rental property that incurs a tax loss in one or more tax years and the taxpayer: *Satisfies the hour requirements but needs help documenting their time and activities, *Is not directly involved in operating the business or rentals on a day-to-day basis, *Has another source of income that generates an income tax liability in the current year, and *If the business or rentals are owned by a partnership or S corporation, has sufficient tax basis in the loss business entity to be able to deduct the losses in the current year. Who Can Benefit from a Material Participation Time Study IRS TAX DEBT RELIEF & COLLECTIONS The material participation time study is a process to identify and document a business or rental owner’s time to determine whether one or more of the time-based material participation tests is met. The study: Starts with a broad outline of all the activities that the owner could have engaged in throughout the year for the business or rental. Focuses identifying all available evidence to establish which of these activities the owner engaged in during the year and sources of evidence to support the activity. Quantifies the time spent on the activities in compliance with the applicable regulations and court cases. Collects the documents to support the time spent on qualifying activities. Examples of businesses that can benefit: Real Estate Owners Hotels & Apartments Dry Cleaning & Laundromats Restaurants & Food Chains Gas & Convenience Stores Hair and Nail Care & Salons Oil Change & Car Repair Shops Day Care & Nurseries GYMs & Fitness Centers Vending Machine Owners

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WE DELIVER SPECIALIZED TAX SOLUTIONS

THE PROBLEM

THE SOLUTION

Suspended Tax Losses Due tothe Material Participation Rules

The Material Participation TimeStudy

IRS AUDITS &APPEALS

TAX ADVICE &PLANNING

Get in touch 832-915-1040 www.materialparticipation.com 5847 San Felipe, Houston TX

Given the passive activity loss rules, businessand rental owners must materially participatein order to deduct their business or rentallosses in the current year.

The tax rules provide several time-basedtests to determine whether a taxpayermaterially participates.

Some taxpayers assume that they will beable to substantiate their activities if needed.They do not consider how difficult it is tosubstantiate activities that happened severalyears in the past. This is what the IRS willexpect the taxpayer to be able to do on audit.

Others take the position that they do notmaterially participate, even when they do,knowing that they would not be able todocument their activities. Many taxpractitioners provide similar advice to theirclients.

The Time-Based Tests toDetermine Material Participation

A business or rental owner is treated asmaterially participating if he is involved in theoperations of the activity on a regular basis.

There are seven exclusive tests for evaluatingthis. Three of these tests are that the ownerparticipates:

1. In the activity for more than 100 hoursduring the year and no one else participatesmore than the owner.

2. In the activity for more than 500 hoursduring the year.

3. In two or more businesses or activities inthe aggregate more than 500 hours during theyear,with at least two of the activities withmore than 100 hours during the year, but theowner does not participate in each individualactivity separately more than 500 hours duringthe year.

Business and rental owners generally haveto qualify under one of these time-based tests.

The benefit is not limited to taxpayers in aparticular industry. Taxpayers in nearly everyindustry can benefit.

This includes individuals that operate theirbusinesses or rentals as disregarded entities,general and limited partner in partnerships, andmembers of S corporations.

Taxpayers who benefit will own a businessand/or rental property that incurs a tax loss inone or more tax years and the taxpayer:

*Satisfies the hour requirements but needshelp documenting their time and activities,

*Is not directly involved in operating thebusiness or rentals on a day-to-day basis,

*Has another source of income that generatesan income tax liability in the current year, and

*If the business or rentals are owned by apartnership or S corporation, has sufficient taxbasis in the loss business entity to be able todeduct the losses in the current year.

Who Can Benefit from a MaterialParticipation Time Study

IRS TAX DEBTRELIEF &COLLECTIONS

The material participation time study is aprocess to identify and document abusiness or rental owner’s time to determinewhether one or more of the time-basedmaterial participation tests is met.

The study:

Starts with a broad outline of all theactivities that the owner could have engagedin throughout the year for the business orrental.

Focuses identifying all available evidence toestablish which of these activities theowner engaged in during the year andsources of evidence to support the activity.

Quantifies the time spent on the activities incompliance with the applicable regulationsand court cases.

Collects the documents to support the timespent on qualifying activities.

Examples of businesses thatcan benefit:

Real Estate OwnersHotels & ApartmentsDry Cleaning & LaundromatsRestaurants & Food ChainsGas & Convenience StoresHair and Nail Care & SalonsOil Change & Car Repair ShopsDay Care & NurseriesGYMs & Fitness CentersVending Machine Owners