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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