Instructions For Form 8810 - 2016 (Page 3 of 13) in pdf

2. Whether the corporation materially

activity, special rules apply. See Publicly

by other reasonable means. Reasonable

participated in the activity for the tax year.

Traded Partnerships (PTPs), later. See Pub.

means for this purpose may include, but are

925 for details about how to report income or

not limited to, the identification of services

To report income, deductions, losses, or

losses from significant participation passive

performed over a period of time and the

credits from a trade or business activity in

activities.

approximate number of hours spent

which the corporation did not materially

performing the services during that period,

In general, if the corporation has credits

participate, see Trade or business activities

based on appointment books, calendars, or

from passive activities, use Worksheet 5 to

without material participation under

narrative summaries.

figure the amount to enter in Part II of Form

Reporting Income, Deductions, Losses, and

8810. However, if the corporation held the

Credits From Trade or Business Activities,

Tests for investors. Work done as an

activity through a PTP, special rules apply.

later.

investor in an activity is not treated as

See Credits From PTPs, later, for details

participation unless the individual was

If the corporation meets any of the five

about how to report credits from these

directly involved in the day-to-day

exceptions and the activity is a trade or

activities.

management or operations of the activity.

business activity in which the corporation

For purposes of this test, work done as an

Material Participation

materially participated, report any income,

investor includes the following activities.

deduction, loss, or credit from the activity on

Personal service corporations and closely

Studying and reviewing financial

the forms or schedules normally used.

held corporations materially or significantly

statements or reports on operations of the

participate in an activity if one or more

activity.

If the rental activity did not meet any of

individuals (each of whom would materially

Preparing or compiling summaries or

the five exceptions, it generally is a passive

or significantly participate in the activity if the

analyses of the finances or operations of the

activity. Special rules apply if the corporation

corporation's activity were the individual's

activity for the individual's own use.

conducted the rental activity through a

activity) directly or indirectly own more than

Monitoring the finances or operations of

publicly traded partnership (PTP) or if any of

50% (by value) of the corporation's

the activity in a nonmanagerial capacity.

the rules described under Recharacterization

outstanding stock. For this purpose, an

of Passive Income, later, apply. See PAL

If the individual is married for the tax year,

individual's participation in all activities other

rules for partners in PTPs under Special

the individual's participation in an activity

than activities of the corporation is

Instructions for PTPs, later.

includes any participation in the activity

disregarded.

during the tax year by that individual's

If none of the special rules apply, use

spouse, whether or not the spouse owned

Worksheets 1 and 2 to determine the amount

A closely held corporation also materially

any interest in the activity and whether or not

to enter in Part I of Form 8810 for each

participates in an activity if the corporation

the individual and spouse file a joint return

passive rental activity. If the corporation has

satisfies the qualifying business

for the tax year.

credits from passive rental activities, use

requirements of section 465(c)(7)(C) (without

Worksheet 5 to figure the amount to enter in

regard to section 465(c)(7)(C)(iv) for the

Tests for individuals. An individual would

excluded business exception from the at-risk

Part II of Form 8810. The worksheets are

materially participate in an activity of the

located later in the instructions.

limitations).

corporation if one or more of the following

tests are satisfied.

Trade or Business

These requirements are met if:

1. The individual participated in the

1. During the entire 12-month period

Activities

activity for more than 500 hours.

ending on the last day of the tax year,

2. The individual's participation in the

A trade or business activity is an activity

substantially all the services of at least one

activity for the tax year was substantially all

(other than a rental activity or an activity

full-time employee of the corporation were in

of the participation in the activity of all

treated as incidental to an activity of holding

the active management of the activity;

individuals (including individuals who did not

property for investment) that:

2. During the same period, substantially

own any interest in the corporation or the

1. Involves the conduct of a trade or

all the services of at least three full-time

activity) for the year.

business (within the meaning of section

nonowner employees were directly related to

3. The individual participated in the

162),

the activity; and

activity for more than 100 hours during the

2. Is conducted in anticipation of starting

3. The deductions attributable to the

tax year, and that individual participated at

a trade or business, or

activity and allowed solely under sections

least as much as any other individual

162 and 404 exceed 15% of the gross

3. Involves research or experimental

(including individuals who did not own any

income from the activity for the tax year.

expenditures deductible under section 174

interest in the corporation or the activity) for

(or that would be if the corporation chose to

the year.

Participation. For purposes of the material

deduct rather than capitalize them).

4. The activity is a significant

participation tests listed below, participation

participation activity for the individual for the

Reporting Income, Deductions,

generally includes any work the individual

tax year, and the individual participated in all

did (without regard to the capacity in which

Losses, and Credits From

significant participation activities during the

the individual did it) in connection with an

Trade or Business Activities

year for more than 500 hours. For this

activity in which the corporation owned an

purpose, an individual's participation in all

interest at the time the individual did the

Trade or business activities with material

activities other than activities of the

work.

participation. If the corporation materially

corporation is disregarded.

Work is not treated as participation,

participated in a trade or business activity,

A significant participation activity is any

however, if the work is not work that an

that activity is not a passive activity. Report

trade or business activity in which the

owner of that type of activity would

the income, deductions, losses, and credits

individual participated for more than 100

customarily do, and if one of the individual's

from the activity on the form or schedule

hours during the year and in which the

main reasons for doing the work is to avoid

normally used.

individual did not materially participate under

the disallowance of losses or credits from the

Trade or business activities without ma-

any of the material participation tests (other

activity under the passive activity loss and

terial participation. In general, use

than this fourth test). For more information

credit rules.

Worksheets 1 and 2 to determine the amount

regarding significant participation, see Pub.

to enter in Part I of Form 8810 for each trade

Proof of participation. Participation in

925.

or business activity in which the corporation

an activity can be proved by any reasonable

5. The individual materially participated

did not materially participate. If, however, the

means. Contemporaneous daily time

in the activity for any 5 (whether or not

corporation held the activity through a PTP or

reports, logs, or similar documents are not

the activity is a significant participation

required if participation can be established

Instructions for Form 8810 (2016)

-3-

Instructions For Form 8810 - 2016 Page 3

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