Still Waiting For Guidance On Material Participation

In March 2014, I commented on the US Tax Court decision in the Frank Aragona Trust case. In that case, the tax court disagreed with the Internal Revenue Service's arguments that a trust was incapable of providing "personal services" to meet the material participation test under IRC § 469 (c)(7).

In November 2013, when the Service issued the final net investment tax rules, it promised to address the material participation dilemma. To date, no guidance other the Service's arguments in several court cases have been issued.

Most practitioners take the position that a fiduciary's participation in the activities in question in any capacity should count for purposes of the material participation determination. The American Institute of CPAs (AICPA) has recommended that when there are multiple fiduciaries, material participation by any one fiduciary should be sufficient for purposes of satisfying the material participation test under IRC § 469 (c)(7). The American Bar