Proving Material Participation for the Passive Loss Rules (Completed)

Date: Monday, August 3, 2020
Instructor: James R. Hamill
Begin Time:  12:00pm Pacific Time
1:00pm Mountain Time
2:00pm Central Time
3:00pm Eastern Time
CPE Credit:  2 hours for CPAs
2 hours Federal Tax Related for EAs and OTRPs
2 hours Federal Tax Law for CTEC

Help build an audit defense for clients seeking to deduct losses and avoid the NIIT
The definition of a passive activity has become an integral part of the definition of net investment income under Section 1411. The 3.8% net investment income tax (NIIT) on high-income taxpayers requires tax professionals to gain a complete understanding of the Section 469 passive loss rules enacted in 1986 to shut down tax shelters.

An increasing number of taxpayers are seeking help avoiding passive status and, thus, the 3.8% NIIT. Successfully achieving that goal requires a taxpayer satisfy one of seven material participation tests found in the regulations. These tests require careful assessment of the taxpayer’s activities by hour, but do not require a daily log book of hours spent on the activity. Nonetheless, IRS has been strict in requiring contemporaneous records, and there has been significant litigation on the material participation issue. Qualifying for material participation will become increasingly important as a means to avoid the 3.8% NIIT.

The two-hour CPE webinar presented by James Hamill, CPA, Ph.D., explains the seven tests with a particular focus on the case law that has defined how to prove that one or more of the tests has been satisfied. This program is particularly important in helping clients prepare for IRS audits as well as in handling ongoing audits involving material participation challenges.

Who Should Attend
CPAs, EAs, return preparers, tax attorneys and other tax professionals who advise clients who may be subject to the passive loss rules or the NIIT will benefit from this insightful webinar.

Topics Covered

  • How material participation affects the passive loss rules
  • How material participation affects the NIIT
  • Tests of material participation found in the regulations
  • Detailed review of court decisions evaluating how to document material participation
  • Analysis of lessons learned by prior court challenges

Learning Objectives

  • Describe the seven tests for material participation
  • Determine how to best defend your clients against a material participation challenge


Instructional Method
Group: Internet-based

NASBA Field of Study
Taxes (2 hours)

Program Prerequisites
Basic understanding of federal income taxation

Advance Preparation

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