IRS requirements for recordkeeping & tracking material participation hours

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Material Participation and Recordkeeping for Hours

It’s important to note that you must keep contemporaneous records and those records need to be absolutely bulletproof to substantiate your active or material participation claim. 

​​To meet the recordkeeping requirements of Reg. § 1.469-5T(f)(4), the taxpayer must establish his participation by reasonable means. 

  • An identification of the services provided; AND, • 
  • The approximate number of hours spent, based on appointment books, calendars, or narrative summaries. 

Contemporaneous daily records are not required if the taxpayer’s participation can be reasonably established. If records provided are not reasonable, i.e. there is a credibility issue, you may request contemporaneous records. The courts have repeatedly taken a dim view of self-serving guesstimates of time. See Scheiner, Tax Court Memo 1996-554, 72 T.C.M. (CCH) 1532 and Carlstedt Tax Court Memo 1997-33, 74 T.C.M. (CCH) 170. Straight from the IRS Technical Audit Guide)

This article is provided for illustrative purposes only; it does not provide personalized tax, legal, financial, or other professional advice. Your situation may be different; consult a professional for information concerning your individual tax, financial, or legal situation before taking any action.