[Code of Federal Regulations]
[Title 26, Volume 6]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.469-5]

[Page 479-480]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.469-5  Material participation.

    (a)-(e) [Reserved]
    (f) Participation--(1) In general. Except as otherwise provided in 
this paragraph (f), any work done by an individual (without regard to 
the capacity in which the individual does the work) in connection with 
an activity in which the individual owns an interest at the time the 
work is done shall be treated for purposes of this section as 
participation of the individual in the activity.
    (f)(2)-(h)(2) [Reserved]
    (h)(3) Coordination with rules governing the treatment of 
passthrough entities. If a taxpayer takes into account for a taxable 
year of the taxpayer any item of gross income or deduction from a 
partnership or S corporation that is characterized as an item of gross 
income or deduction from an activity in which the taxpayer materially 
participated under Sec. 1.469-2T(e)(1), the taxpayer is treated as 
materially participating in the activity for the taxable year for 
purposes of applying Sec. 1.469-5T(a)(5) and (6) to any succeeding 
taxable year of the taxpayer.
    (i) [Reserved]
    (j) Material participation for preceding taxable years--(1) In 
general. For purposes of Sec. 1.469-5T(a)(5) and (6), a taxpayer has 
materially participated in an activity for a preceding taxable year if 
the activity includes significant section 469 activities that are 
substantially the same as significant section 469 activities that were 
included in an activity in which the taxpayer materially participated 
(determined without regard to Sec. 1.469-5T(a)(5)) for the preceding 
taxable year.
    (2) Material participation for taxable years beginning before 
January 1, 1987. In any case in which it is necessary to determine 
whether an individual materially participated in any activity for a 
taxable year beginning before January 1, 1987 (other than a taxable year 
of a partnership, S corporation, estate, or trust ending after December 
31, 1986), the determination shall be made without regard to paragraphs 
(a)(2) through (7) of this section.
    (k) Examples. Example (1)--Example (4) [Reserved]

    Example (5). In 1993, D, an individual, acquires stock in an S 
corporation engaged in a trade or business activity (within the meaning 
of Sec. 1.469-1(e)(2)). For every taxable year from 1993 through 1997, 
D is treated as

[[Page 480]]

materially participating (without regard to Sec. 1.469-5T(a)(5)) in the 
activity. D retires from the activity at the beginning of 1998, and 
would not be treated as materially participating in the activity for 
1998 and subsequent taxable years if material participation of those 
years were determined without regard to Sec. 1.469-5T(a)(5). Under 
Sec. 1.469-5T(a)(5) of this section, however, D is treated as 
materially participating in the activity for taxable years 1998 through 
2003 because D materially participated in the activity (determined 
without regard to Sec. 1.469-5T(a)(5) for five taxable years during the 
ten taxable years that immediately precede each of those years. D is not 
treated under Sec. 1.469-5T(a)(5) as materially participating in the 
activity for taxable years beginning after 2003 because for those years 
D has not materially participated in the activity (determined without 
regard to Sec. 1.469-5T(a)(5) for five of the last ten immediately 
preceding taxable years.

[T.D. 8417, 57 FR 20758, May 15, 1992]