E-6100, Materially Participating

Revision 16-4; Effective December 1, 2016

For earned income to be considered self-employment, either the person individual or the individual's spouse must be actively involved or materially participating in producing the income. See Section E-3100, Types of Earned Income.

Materially participating. An individual business owner is determined to be materially participating if the individual meets any one of the following criteria:

• the individual engages in periodic advice and consultation with the tenant, inspection of the production activities, and furnishing of machinery, equipment, livestock and production expenses;
• the individual makes management decisions that affect the success of the enterprise;
• the individual performs a specified amount of physical labor to produce the commodities raised; or

• the individual does not meet the full requirements above, but the individual's involvement in crop production is nevertheless significant.

Consider income from the sale of timber "farm" income if:

• the timber was grown on the farm;
• the income is not treated as capital gains; and
• the timber operations are incidental to or tied in with the operation of the farm to constitute one business.