1. the only members of the joint venture are a husband and wife;
2. the husband and wife must file a joint return;
3. both spouses must "materially participate" in the business; and
4. both spouses must elect not to be treated as a partnership.

1. The taxpayer works 500 hours or more during the year in the activity;
2. The taxpayer does substantially all the work in the activity;
3. The taxpayer works more than 100 hours in the activity during the year and no one else works more than the taxpayer;
4. The activity is a significant participation activity, and the sum of significant participation activities in which the taxpayers works 100-500 hours exceeds 500 hours for the year (significant participation activity is any trade or business activity in which one significantly participates for the taxable year for more than 100 hours during such year, but in which one does not otherwise materially participate);
5. The taxpayer materially participated in the activity in any 5 of the prior 10 years;
6. The activity is a personal service activity and the taxpayer materially participated in that activity in any 3 prior years; or
7. The taxpayer participates in the activity on a regular, continuous, and substantial basis during such year, working at least 100 hours in the activity, with no one else working more hours than the taxpayer in the activity, and no one else receiving compensation for managing the activity.

How can the spouses in a qualified joint venture make the election not to be treated as a partnership for Federal income tax purposes? They simply include with the jointly filed Form 1040 a separate Schedule C for each one's respective share of all items of income, gains, losses, deductions, and credits in accordance with each spouse's ownership interest in the joint venture, and a separate Schedule SE, Self-Employment Tax, for the security security tax allocation. If a partnership return was filed in the preceding tax year, the partnership will be considered terminated by the IRS as of the end of that preceding tax year. No final Form 1065 needs to be filed. In all probability, the spouses will receive a notice from the IRS asking for a Form 1065 for the year of election, in which case, the spouses are advised to call the IRS at the toll-free number on the notice and advise the service representative that they reported the income on their jointly-filed individual income tax return as a qualified joint venture, or to write to the address shown on the notice and provide the same information.

Although once the election is made, it can be revoked only with the permission of the IRS, if the spouses fail to meet the requirements for filing the election for a year, it simply ceases to be in effect. A new election then becomes necessary for any future year in which the spouses desire to be treated as a qualified joint venture as long as they meet its requirements.