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which you participated for more than

3. Monitoring the finances or

5. Interdependencies between or

operations of the activity in a

among the activities.

100 hours during the year and in

which you did not materially

nonmanagerial capacity.

participate under any of the material

Example. You have a significant

Special rules for limited partners.

participation tests (other than this

ownership interest in a bakery and a

If you were a limited partner in an

fourth test).

movie theater in Baltimore and in a

activity, you generally did not

bakery and a movie theater in

5. You materially participated in

materially participate in the activity.

Philadelphia. Depending on all the

the activity for any 5 (whether or not

You did materially participate in the

relevant facts and circumstances,

consecutive) of the 10 immediately

activity, however, if you met material

there may be more than one

preceding tax years.

participation test 1, 5, or 6 (see Tests

reasonable method for grouping your

6. The activity is a personal

for individuals beginning on page 3)

activities. For instance, the following

service activity in which you

for the tax year.

groupings may or may not be

materially participated for any 3

permissible.

However, for purposes of the

(whether or not consecutive)

•

material participation tests, you are

A single activity.

preceding tax years.

not treated as a limited partner if you

•

A movie theater activity and a

An activity is a personal service

also were a general partner in the

bakery activity.

activity if it involves the performance

partnership at all times during the

•

of personal services in the fields of

A Baltimore activity and a

partnership’s tax year ending with or

health, law, engineering, architecture,

Philadelphia activity.

within your tax year (or, if shorter,

•

accounting, actuarial science,

Four separate activities.

during the portion of the partnership’s

performing arts, consulting, or in any

tax year in which you directly or

Once you choose a grouping

other trade or business in which

indirectly owned your limited partner

under these rules, you must continue

capital is not a material income-

interest).

using that grouping in later tax years

producing factor.

unless a material change in the facts

A limited partner’s share of an

7. Based on all the facts and

and circumstances makes it clearly

electing large partnership’s taxable

circumstances, you participated in the

inappropriate.

income or loss from all trade or

activity on a regular, continuous, and

business and rental activities is

substantial basis during the tax year.

The IRS may regroup your

treated as income or loss from the

You did not materially participate in

activities if your grouping fails to

conduct of a single passive trade or

the activity under this seventh test,

reflect one or more appropriate

business activity.

however, if you participated in the

economic units and one of the

Special rules for certain retired or

activity for 100 hours or less during

primary purposes of your grouping is

disabled farmers and surviving

the tax year.

to avoid the passive activity

spouses of farmers. Certain

limitations.

Your participation in managing the

retired or disabled farmers and

activity does not count in determining

Limitation on grouping certain

surviving spouses of farmers are

whether you materially participated

activities. The following activities

treated as materially participating in a

under this test if:

may not be grouped together.

farming activity if the real property

a. Any person (except you)

used in the activity meets the estate

1. A rental activity with a trade or

received compensation for performing

tax rules for special valuation of farm

business activity unless the activities

services in the management of the

property passed from a qualifying

being grouped together make up an

activity, or

decedent. See Temporary

appropriate economic unit and:

b. Any individual spent more

Regulations section 1.469-5T(h)(2).

a. The rental activity is

hours during the tax year performing

insubstantial relative to the trade or

Estates and trusts. The PAC

services in the management of the

business activity or vice versa, or

limitations apply to an estate or trust.

activity than you did (regardless of

See Temporary Regulations sections

b. Each owner of the trade or

whether the individual was

1.469-1T(b)(2) and (3). The rules for

business activity has the same

compensated for the management

determining material participation for

proportionate ownership interest in

services).

this purpose have not yet been

the rental activity. If so, the portion of

issued.

the rental activity involving the rental

Test for a spouse. Participation by

of property used in the trade or

your spouse during the tax year in an

Grouping of Activities

business activity may be grouped

activity you own may be counted as

with the trade or business activity.

Generally, one or more trade or

your participation in the activity, even

2. An activity involving the rental

business activities or rental activities

if your spouse did not own an interest

of real property with an activity

may be treated as a single activity if

in the activity and whether or not you

involving the rental of personal

the activities make up an appropriate

and your spouse file a joint return for

property (except personal property

economic unit for the measurement of

the tax year.

provided in connection with the real

gain or loss under the passive activity

property or vice versa).

rules.

Test for investors. Work done as

3. Any activity with another activity

an investor in an activity is not treated

Whether activities make up an

as participation unless you were

in a different type of business and in

appropriate economic unit depends

directly involved in the day-to-day

which you hold an interest as a

on all the relevant facts and

management or operations of the

limited partner or as a limited

circumstances. The factors given the

entrepreneur (as defined in section

activity. For purposes of this test,

greatest weight in determining

464(e)(2)), if that other activity

work done as an investor includes:

whether activities make up an

engages in holding, producing, or

1. Studying and reviewing

appropriate economic unit are:

distributing motion picture films or

financial statements or reports on

1. Similarities and differences in

videotapes; farming; leasing section

operations of the activity,

types of trades or businesses,

1245 property; or exploring for (or

2. Preparing or compiling

2. The extent of common control,

exploiting) oil and gas resources or

summaries or analyses of the

3. The extent of common

geothermal deposits.

finances or operations of the activity

ownership,

for your own use, and

4. Geographical location, and

-4-

Instructions for Form 8582-CR (2010)

Instructions For Form 8582-Cr - Passive Activity Credit Limitations - Internal Revenue Service - Page 4

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