Final answer:
If a proprietor 'materially participates' in the business, it means they are actively involved in the day-to-day operations and management, taking on the financial responsibilities and risks. Material participation is important for tax purposes.
Step-by-step explanation:
In the context of business, when a proprietor 'materially participates' in the business, it means that they are actively involved in the day-to-day operations and management of the business. This includes making decisions, overseeing employees, and being responsible for the overall running and success of the business.
An example of material participation would be a sole proprietor who is the primary decision-maker, actively manages the business, and takes on the financial risks and responsibilities.
Material participation is often important for tax purposes, as it determines whether the proprietor qualifies for certain tax deductions or benefits related to their business.