Looking for a Form 8810 Templates? Download it for free!

any income, deduction, loss, or credit from

50% (by value) of the corporation’s

Tests for individuals. An individual would

the activity on the forms or schedules

outstanding stock. For this purpose, an

materially participate in an activity of the

normally used.

individual’s participation in all activities other

corporation if one or more of the following

than activities of the corporation is

tests are satisfied.

If the rental activity did not meet any of

disregarded.

1. The individual participated in the

the five exceptions, it generally is a passive

activity. Special rules apply if the corporation

activity for more than 500 hours.

A closely held corporation also materially

conducted the rental activity through a

2. The individual’s participation in the

participates in an activity if the corporation

publicly traded partnership (PTP) or if any of

activity for the tax year was substantially all

satisfies the qualifying business

the rules described under

of the participation in the activity of all

requirements of section 465(c)(7)(C)

Recharacterization of Passive Income on

individuals (including individuals who did not

(without regard to section 465(c)(7)(C)(iv)

own any interest in the corporation or the

page 5 apply. See PAL rules for partners in

for the excluded business exception from

PTPs on page 10.

activity) for the year.

the at-risk limitations).

3. The individual participated in the

If none of the special rules apply, use

These requirements are met if:

activity for more than 100 hours during the

Worksheets 1 and 2 on page 7 to determine

1. During the entire 12-month period

tax year, and that individual participated at

the amount to enter in Part I of Form 8810

ending on the last day of the tax year,

least as much as any other individual

for each passive rental activity. If the

substantially all the services of at least one

(including individuals who did not own any

corporation has credits from passive rental

full-time employee of the corporation were in

interest in the corporation or the activity) for

activities, use Worksheet 5 on page 10 to

the active management of the activity;

the year.

figure the amount to enter in Part II of Form

2. During the same period, substantially

4. The activity is a significant

8810.

all the services of at least three full-time

participation activity for the individual for the

nonowner employees were directly related

Trade or Business

tax year, and the individual participated in all

to the activity; and

significant participation activities during the

Activities

3. The deductions attributable to the

year for more than 500 hours. For this

activity and allowed solely under sections

purpose, an individual’s participation in all

A trade or business activity is an activity

162 and 404 exceed 15% of the gross

activities other than activities of the

(other than a rental activity or an activity

income from the activity for the tax year.

corporation is disregarded.

treated as incidental to an activity of holding

A significant participation activity is any

property for investment) that:

Participation. For purposes of the material

trade or business activity in which the

1. Involves the conduct of a trade or

participation tests listed below, participation

individual participated for more than 100

generally includes any work the individual

business (within the meaning of section

hours during the year and in which the

did (without regard to the capacity in which

162),

individual did not materially participate under

the individual did it) in connection with an

2. Is conducted in anticipation of starting

any of the material participation tests (other

a trade or business, or

activity in which the corporation owned an

than this fourth test). For more information

3. Involves research or experimental

interest at the time the individual did the

regarding significant participation, see Pub.

expenditures deductible under section 174

work.

925.

(or that would be if the corporation chose to

Work is not treated as participation,

5. The individual materially participated

deduct rather than capitalize them).

however, if the work is not work that an

in the activity for any 5 (whether or not

owner of that type of activity would

consecutive) of the 10 immediately

Reporting Income, Deductions,

customarily do, and if one of the individual’s

preceding tax years.

Losses, and Credits From

main reasons for doing the work is to avoid

6. The activity is a personal service

the disallowance of losses or credits from

Trade or Business Activities

activity in which the individual materially

the activity under the passive activity loss

participated for any 3 (whether or not

and credit rules.

Trade or business activities with material

consecutive) preceding tax years.

participation. If the corporation materially

Proof of participation. Participation in

An activity is a personal service activity if

participated in a trade or business activity,

an activity can be proved by any reasonable

it involves the performance of personal

that activity is not a passive activity. Report

means. Contemporaneous daily time

services in the fields of health, law,

the income, deductions, losses, and credits

reports, logs, or similar documents are not

engineering, architecture, accounting,

from the activity on the form or schedule

required if participation can be established

actuarial science, performing arts or

normally used.

by other reasonable means. Reasonable

consulting in any other trade or business in

Trade or business activities without

means for this purpose may include, but are

which capital is not a material

material participation. In general, use

not limited to, the identification of services

income-producing factor.

Worksheets 1 and 2 on page 7 to determine

performed over a period of time and the

7. Based on all the facts and

the amount to enter in Part I of Form 8810

approximate number of hours spent

circumstances, the individual participated in

for each trade or business activity in which

performing the services during that period,

the activity on a regular, continuous, and

the corporation did not materially participate.

based on appointment books, calendars, or

substantial basis during the tax year.

If, however, the corporation held the activity

narrative summaries.

The individual did not materially

through a PTP or the activity is a significant

Tests for investors. Work done as an

participate in the activity under this seventh

participation activity, special rules apply.

investor in an activity is not treated as

test, however, if the individual participated in

See Publicly Traded Partnerships (PTPs) on

participation unless the individual was

the activity for 100 hours or less during the

page 10. See Pub. 925 for details about how

directly involved in the day-to-day

tax year. Participation in managing the

to report income or losses from significant

management or operations of the activity.

activity does not count in determining

participation passive activities.

For purposes of this test, work done as an

whether the individual materially participated

In general, if the corporation has credits

investor includes the following activities.

under the test if:

•

from passive activities, use Worksheet 5 on

Studying and reviewing financial

a. Any person (except that individual)

page 10 to figure the amount to enter in Part

statements or reports on operations of the

received compensation for performing

II of Form 8810. However, if the corporation

activity.

services in the management of the activity,

•

held the activity through a PTP, special rules

Preparing or compiling summaries or

apply. See Credits From PTPs on page 12

analyses of the finances or operations of the

b. Any person in the activity spent more

for details about how to report credits from

activity for the individual’s own use.

hours during the tax year than that individual

•

these activities.

Monitoring the finances or operations of

spent performing services in the

the activity in a nonmanagerial capacity.

management of the activity (regardless of

Material Participation

whether the individual was compensated for

If the individual is married for the tax

the management services).

Personal service corporations and closely

year, the individual’s participation in an

held corporations materially or significantly

activity includes any participation in the

Special rules for limited partners.

participate in an activity if one or more

activity during the tax year by that

individuals (each of whom would materially

individual’s spouse, whether or not the

Generally, a limited partner cannot

or significantly participate in the activity if the

spouse owned any interest in the activity

materially participate in an activity. However,

corporation’s activity were the individual’s

and whether or not the individual and

the corporation is considered to materially

activity) directly or indirectly own more than

spouse file a joint return for the tax year.

participate in an activity in which it holds a

-3-

Instructions for Form 8810 (2010)

Instructions For Form 8810 - Corporate Passive Activity Loss And Credit Limitations - 2010 Page 3

Related Articles

Related forms

Related Categories