Instructions For Form 8582 - Department Of The Treasury

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A significant participation activity

indirectly owned your limited partner

A Baltimore activity and a

is any trade or business activity in

interest).

Philadelphia activity, or

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which you participated for more than

Four separate activities.

A limited partner’s share of an

Once you choose a grouping

100 hours during the year and in

electing large partnership’s taxable

which you did not materially

under these rules, you must continue

income or loss from all trade or

using that grouping in later tax years

participate under any of the material

business and rental activities is

unless a material change in the facts

participation tests (other than this

treated as income or loss from the

and circumstances makes it clearly

fourth test).

conduct of a single passive trade or

inappropriate.

5. You materially participated in

business activity.

the activity for any 5 (whether or not

The IRS may regroup your

Special rules for certain retired or

consecutive) of the 10 immediately

activities if your grouping fails to

disabled farmers and surviving

preceding tax years.

reflect one or more appropriate

spouses of farmers. Certain retired

6. The activity is a personal

economic units and one of the

or disabled farmers and surviving

service activity in which you

primary purposes of your grouping is

spouses of farmers are treated as

materially participated for any 3

to avoid the passive activity

materially participating in a farming

(whether or not consecutive)

limitations.

activity if the real property used in the

preceding tax years.

activity would meet the estate tax

Limitation on grouping certain

An activity is a personal service

rules for special valuation of farm

activities. The following activities

activity if it involves the performance

property passed from a qualifying

may not be grouped together:

of personal services in the fields of

decedent. See Temporary

1. A rental activity with a trade or

health, law, engineering, architecture,

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

business activity unless the activities

accounting, actuarial science,

Estates and trusts. The PAL

being grouped together make up an

performing arts, or consulting or in

limitations apply in figuring the

appropriate economic unit and

any other trade or business in which

distributable net income and taxable

a. The rental activity is

capital is not a material

income of an estate or trust. See

insubstantial relative to the trade or

income-producing factor.

Temporary Regulations section

business activity or vice versa or

7. Based on all the facts and

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

b. Each owner of the trade or

circumstances, you participated in the

determining material participation for

business activity has the same

activity on a regular, continuous, and

this purpose have not yet been

proportionate ownership interest in

substantial basis during the tax year.

issued.

the rental activity. If so, the portion of

You did not materially participate in

the rental activity involving the rental

Grouping of Activities

the activity under this seventh test,

of property used in the trade or

however, if you participated in the

Generally, one or more trade or

business activity may be grouped

activity for 100 hours or less during

business activities or rental activities

with the trade or business activity.

the tax year. Your participation in

may be treated as a single activity if

2. An activity involving the rental

managing the activity does not count

the activities make up an appropriate

of real property with an activity

in determining whether you materially

economic unit for the measurement of

involving the rental of personal

participated under this test if:

gain or loss under the passive activity

property (except personal property

rules. Whether activities make up an

a. Any person (except you)

provided in connection with the real

appropriate economic unit depends

received compensation for performing

property or vice versa).

on all the relevant facts and

services in the management of the

3. Any activity with another activity

circumstances. The factors given the

activity or

in a different type of business and in

greatest weight in determining

which you hold an interest as a

b. Any individual spent more

whether activities make up an

limited partner or as a limited

hours during the tax year than you

appropriate economic unit are:

entrepreneur (as defined in section

spent performing services in the

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

management of the activity

1. Similarities and differences in

engages in holding, producing, or

(regardless of whether the individual

types of trades or businesses,

distributing motion picture films or

was compensated for the

2. The extent of common control,

videotapes; farming; leasing section

management services).

3. The extent of common

1245 property; or exploring for or

ownership,

exploiting oil and gas resources or

4. Geographical location, and

Special rules for limited partners.

geothermal deposits.

5. Reliance between or among the

If you were a limited partner in an

activities.

activity, you generally did not

Activities conducted through

materially participate in the activity.

Example. You have a significant

partnerships, S corporations, and

You did materially participate in the

ownership interest in a bakery and a

C corporations subject to section

activity, however, if you met material

movie theater in Baltimore and in a

469. Once a partnership or

participation test 1, 5, or 6 above for

bakery and a movie theater in

corporation determines its activities

the tax year.

Philadelphia. Depending on all the

under these rules, a partner or

However, for purposes of the

relevant facts and circumstances,

shareholder may use these rules to

material participation tests, you are

there may be more than one

group those activities with:

•

not treated as a limited partner if you

reasonable method for grouping your

Each other,

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also were a general partner in the

activities. For instance, the following

Activities conducted directly by the

partnership at all times during the

groupings may or may not be

partner or shareholder, or

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partnership’s tax year ending with or

permissible:

Activities conducted through other

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within your tax year (or, if shorter,

A single activity,

partnerships and corporations.

•

during the portion of the partnership’s

A movie theater activity and a

A partner or shareholder may not

tax year in which you directly or

bakery activity,

treat as separate activities those

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Instructions For Form 8582 - Department Of The Treasury - 2001 Page 5

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