General K. Hilliard and Ida M. Hilliard - Page 5

          provides generally that, if an activity is not engaged in for               
          profit, no deduction attributable to such activity shall be                 
          allowed except as provided in that section.  Section 183(b)(1)              
          provides that deductions that are allowable without regard to               
          whether the activity is engaged in for profit (e.g., real                   
          property taxes) shall be allowed, and section 183(b)(2) provides            
          that deductions that would be allowable only if the activity were           
          engaged in for profit shall be allowed, "but only to the extent             
          that the gross income derived from such activity for the taxable            
          year exceeds the deductions allowable by reason of" section                 
          183(b)(1).                                                                  
               Section 183(c) defines an "activity not engaged in for                 
          profit" as "any activity other than one with respect to which               
          deductions are allowable for the taxable year under section 162             
          or under paragraph (1) or (2) of section 212".4  For a deduction            
          to be allowed under section 162 or section 212(1) or (2),                   
          petitioners must establish that they engaged in the activity with           
          the actual and honest objective of making an economic profit,               
          independent of tax savings.  Antonides v. Commissioner, 91 T.C.             
          686, 693-694 (1988), affd. 893 F.2d 656 (4th Cir. 1990); Dreicer            
          v. Commissioner, 78 T.C. 642, 644-645 (1982), affd. without                 


               4 Under sec. 162, deductions are allowable for the expenses            
          of carrying on an activity that constitutes a trade or business             
          if those expenses are ordinary and necessary to the conduct of              
          the trade or business.  Sec. 212 permits the deduction of                   
          expenses incurred in connection with an activity engaged in for             
          the production or collection of income, or for the management,              
          conservation, or maintenance of property held for the production            
          of income.                                                                  



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