Material participation in partnership?

[greentea16]

Hi- I'm filing taxes for someone with the following scenario:

- Was a self employment independent contractor Jan-March 2020

- Due to covid impacts this contracting work stopped producing income, so claimed unemployment starting March-December

- Joined an existing S corp as a 20% partner in June. The S corp produced ~20K in income during the year, and their allocation at 20% was about 4K. They do not receive any W2 wages from this place.

Question- are they able to say they "materially participated" in the partnership, considering that they claimed unemployment March-December? Material participation is obviously beneficial in getting a better refund, however I am unsure if that conflicts with the fact that they were receiving unemployment benefits. Thanks in advance for any advice!

[Mike9241]

if you are preparing a return for a client, then you should familiarize yourself with the passive activity rules. 

if you are using Turbotax to prepare the return and getting paid for this, you are violating the terms of service. 

[greentea16]

My bad in using that terminology- definitely not paid- clearly don’t have enough expertise to be doing this as a profession hence the question 🙂

[Critter-3]

Have the friend seek professional assistance since  he is NOT a partner if the entity is an S-Corp (he is a member or owner)and if he works the business they should be issuing a W-2 along with the K-1 form ... did he get either form ?  

[greentea16]

@Critter-3 Great point. Did receive a K1 for his allocation % of the company’s net income but no W2 (they do not pay him a salary/wages). He did however work past the 100 hours or so required for it not to be a passive activity I believe