# Prop. Treas. Reg. § 1.469-5: Material participation.

Proposed regulation, not in force. REG-109369-10, 76 FR 72875, published 2011-11-28 <https://www.federalregister.gov/documents/2011/11/28/2011-30611/passive-activity-losses-and-credits-limited>. Interprets 26 U.S.C. § 469.

Par. 2. Section 1.469-0 is amended by: 1. Revising the entries for § 1.469-5(a), (b), (c), (d), and (e). 2. Removing the entries for § 1.469-5T(e)(1), (e)(2), and (e)(3). The revisions read as follows:

Par. 3. In § 1.469-5, paragraphs (a), (b), (c), (d), and (e) are revised to read as follows:

(a) through (d) [Reserved].

(e) Treatment of an interest in a limited partnership as a limited partner.

(1) In general.

(2) Exceptions.

(3) Interest in a limited partnership as a limited partner.

(i) In general.

(ii) Individual holding an interest other than an interest in a limited partnership as a limited partner.

(4) Effective/applicability date.

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(a) through (d) [Reserved].

(e) Treatment of an interest in a limited partnership as a limited partner —(1) In general. Except as otherwise provided in this paragraph (e), an individual shall not be treated as materially participating in any activity in which the individual owns an interest in a limited partnership as a limited partner (as defined in paragraph (e)(3)(i) of this section) for purposes of applying section 469 and the regulations thereunder to—

(i) The individual's share of any income, gain, loss, deduction, or credit from such activity that is attributable to an interest in a limited partnership as a limited partner; and

(ii) Any gain or loss from such activity recognized upon a sale or exchange of such an interest.

(2) Exceptions. Paragraph (e)(1) of this section shall not apply to an individual's share of income, gain, loss, deduction, and credit for a taxable year from any activity in which the individual would be treated as materially participating for the taxable year under paragraphs (a)(1), (a)(5), or (a)(6) of § 1.469-5T if the individual did not own an interest in a limited partnership as a limited partner (as defined in paragraph (e)(3)(i) of this section) for such taxable year.

(3) Interest in a limited partnership as a limited partner —(i) In general. Except as provided in paragraph (e)(3)(ii) of this section, for purposes of section 469(h)(2) and this paragraph (e), an interest in an entity shall be treated as an interest in a limited partnership as a limited partner if—

(A) The entity in which such interest is held is classified as a partnership for Federal income tax purposes under § 301.7701-3; and

(B) The holder of such interest does not have rights to manage the entity at all times during the entity's taxable year under the law of the jurisdiction in which the entity is organized and under the governing agreement.

(ii) Individual holding an interest other than an interest in a limited partnershipas a limited partner. An individual shall not be treated as holding an interest in a limited partnership as a limited partner for the individual's taxable year if such  individual also holds an interest in the partnership that is not an interest in a limited partnership as a limited partner (as defined in paragraph (e)(3)(i) of this section), such as a state-law general partnership interest, at all times during the entity's taxable year ending with or within the individual's taxable year (or the portion of the entity's taxable year during which the individual (directly or indirectly) owns such interest in a limited partnership as a limited partner).

(4) Effective/applicability date. This section applies to taxable years beginning on or after the date of publication of the Treasury decision adopting these rules as a final regulation in the Federal Register.

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