Ray owns a business with two separate departments.
Department A produces $100,000 of income and Department B incurs a $60,000
loss. Ray participates for 550 hours in Department A and 100 hours in
Department B. He has full-time employees in both
departments. Which of the following statements is correct?
a. If Ray elects to treat both departments as a single activity,
he can offset the $60,000 loss against the $100,000 income.
b. If Ray elects to treat the two departments as separate
activities, he can offset the $60,000 loss against the $100,000 income.
c. If Ray elects to treat both departments as a single activity,
he cannot offset the $60,000 loss against the $100,000 income.
d. None of the above.
Which of the following factors should be considered in
determining whether an activity is treated as an appropriate economic unit?
a. The similarities and differences in types of business.
b. The extent of common control.
c. The extent of common ownership.
d. The geographic location.
e. All of the above.
Which of the following is not a factor that should be
considered in determining whether an activity is treated as an appropriate
economic unit?
a. The interdependencies between the activities.
b. The extent of common control.
c. The extent of common ownership.
d. The geographical location.
e. All of the above are relevant factors.
Ned, a college professor, owns a separate business (not real
estate) in which he participates in the current year. He has one employee who
works part-time in the business. Which of the following statements is correct?
a. If Ned participates for 120 hours and the employee
participates for 120 hours during the year, Ned does not qualify as a material
participant.
b. If Ned participates for 95 hours and the employee
participates for 5 hours during the year, Ned probably does not qualify as
material participant.
c. If Ned participates for 500 hours and the employee
participates for 520 hours during the year, Ned qualifies as material
participant.
d. If Ned participates for 600 hours and the employee
participates for 2,000 hours during the year, Ned qualifies as a material
participant.
e. None of the above.
Lew owns five activities, and he elects not to group them
together as a single activity under the “appropriate economic unit”
standard. During the year, he participates for 120 hours in Activity A, 150
hours in Activity B, 140 hours in Activity C, 110 hours in Activity D, and 100
hours in Activity E. Which of the following statements is correct?
a. Activities A, B, C, D, and E are all significant
participation activities.
b. Lew is a material participant in Activities A, B, C, and
D only.
c. Lew is a material participant in Activities A, B, C, D,
and E.
d. None of the above.
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