The IRS instructions define material participation as the following:
All determinations of material participation are based on your participation during the partnership's tax year.
If you are an individual (either general partner or a limited partner who owned a general partnership interest at all times during the tax year), you materially participated in an activity only if one or more of the following apply:
- You participated in the activity more than 500 hours during the tax year.
- Your participation in the activity for the tax year was substantially all the participation in the activity of all individuals (including individuals who are not owners of interests in the activity) for the tax year.
- You participated in the activity for more than 100 hours during the tax year, and you participated at least as much as any other individual (including individuals who were not owners of interest in the activity) for the tax year.
- The activity was a significant participation activity for the tax year and you participated in all significant participation activities during the year (including activities outside the partnership) for more than 500 hours.
- You materially participated in the activity for any 5 of the prior 10 tax years (not necessarily consecutive).
- The activity was a personal service activity and you materially participated in the activity for any 3 prior tax years (not necessarily consecutive).
A personal service activity involves the performance of personal services in the field of health, law, engineering, architecture, accounting, performing arts, actuarial science, consulting, and any other trade or business where capital is not a material income producing factor.
- Based on all of the circumstances and facts, you participated in the activity on a regular, continuous, and substantial basis for more than 100 hours during the tax year.