Material Participation Test



A set of criteria that determines whether a taxpayer is a material participant in a business venture. The material participation test will determine whether business income received by the taxpayer is active or passive.

According to the IRS, if the taxpayer participates in a business activity on a regular, continuous and substantial basis, then the taxpayer materially participates in the business.


There are seven tests the IRS uses to determine whether participation in a business activity is material or not. Two of the criteria that they use are the amount of time spent participating in the business activity and how much control the taxpayer has over the activity. Only one of the tests must be passed in order for the taxpayer to be considered materially involved with the production of income, which would then be deemed active income.

  1. Passive Activity Loss Rules

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  3. Personal-Service Activity

    Any business enterprise with the primary purpose of providing personal services. ...
  4. Qualified Production Activities ...

    Income derived from domestic production that qualifies for reduced taxation. ...
  5. Earned Income

    Income derived from active participation in a trade or business, including wages, ...
  6. Active Income

    Income for which services have been performed. This includes wages, tips, salaries, ...
  7. Internal Revenue Service - IRS

    A United States government agency that is responsible for the collection and ...
  8. Passive Loss

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