What you don't mention is whether or not there are other separately stated items on your K-1. This could impact how you enter the K-1 items into TT.
If the only item on your K-1 is on line 1, then I believe you need to indicate in TT that you materially participate. This assumes the entity which prepared the K-1 meets the qualifications in the temporary regulation you cited; is there a footnote that indicates the entity qualifies?
You should also look at the example in the regulation 1.469-2T(f)(4)(viii). In particular section (iv) of the example where it specifically states that the individual does not materially participate.
I also don't believe there is any conflict with Section 1411. While there is no specific mention of the issue you are facing, that is not unusual since regulations get drafted and are in place for decades and yet the tax law evolves and changes.
Based on the above temporary regulation, line 1 is not from a passive activity, so Section 1411 does not apply. Additionally, the temporary regulation deals with trades or businesses that lend money. This is not the same as a trade or business of trading in financial instruments or commodities referenced in Section 475.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
