Practitioners Ask IRS for Answers on Material Participation

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Nov. 2 — The IRS is still trying to figure out how far-reaching the package of rules on material participation for trusts and estates should be, IRS attorney Adrienne Mikolashek told certified public accountants gathered for a conference.

The Internal Revenue Service has heard from some practitioners that they would rather have rules that address more questions than have rules released sooner that just answer the basic question of what constitutes material participation for estates and trusts under tax code Section 469, Mikolashek told Bloomberg BNA Nov. 2.

Mikolashek, who works in the IRS Office of Chief Counsel (Passthroughs and Special Industries), spoke at the American Institute of CPAs National Tax conference about IRS efforts to produce guidance on the net investment income tax.

Section 1411 left CPAs and other practitioners in a quandary, however, because it places a 3.8 percent surtax on investments by estates and trusts that aren't actively engaged in a trade or business, but the IRS hasn't defined what material participation for these entities is.

“Do we answer the question real quick—‘yes, a trust is going to materially participate by walking a straight line using their left foot, moving forward first'; or are we going to try to answer more of the questions—‘what happens when income comes out to the beneficiaries?' ” she said.

Form 8960, No Matter What

While the material participation project is on the business plan for the IRS's current year, she said it isn't likely to appear any time soon.

Meanwhile, she said, an updated Form 8960, Net Investment Income Tax—Individuals, Estates, and Trusts, is expected to be released before year-end, with no real changes except that it is likely to be required whether tax is due or not.

“I think our exam folks are telling us they want to see at least where the numbers came from and how people zeroed things out,” she said.

To contact the reporter on this story: Diane Freda in Washington at
To contact the editor responsible for this story: Brett Ferguson at