Originally published in the Grand Rapids Business Journal and republished with permission.
As the material participation debate continues to ripen, taxpayers and tax professionals are provided with the sweet taste of clarity surrounding the question of whether a trust may materially participate in a trade or business.
To the present day, overcoming the “material participation” hurdle of the passive activity loss rules has been a prevailing concern of taxpayers looking to deduct business losses. Preserving the ability to deduct business losses and in light of Internal Revenue Code 1411’s 3.8 percent Medicare surtax, ensuring that this standard is met is of great importance.
The surtax is imposed on Net Investment Income, which includes income earned from passive trade or business activities. Unless a taxpayer “materially participates” in the activity, that trade or business is considered a passive activity. While the activities of an individual taxpayer will certainly count toward the regular, continuous and substantial requirement of 469, it is less clear whether the activities of trustees, including those as employees, should be considered.
Read the article in its entirety: Made in Michigan: Case Produces Fruitful Holding for Business Owners