Dudley Joseph and Myrna Dupuy Callahan - Page 7

                                        - 7 -                                         
          profit" is any activity for which deductions would not be allowed           
          under section 162 or under paragraph (1) or (2) of section 212.             
          Sec. 183(c).  Section 162 allows a deduction for all the ordinary           
          and necessary expenses paid or incurred in carrying on a                    
          business.  Section 212 allows a deduction for all the ordinary              
          and necessary expenses paid or incurred for the production or               
          collection of income, or for the management, conservation, or               
          maintenance of property held for the production of income.  The             
          profit standards applicable to section 212 are the same as those            
          used in section 162.  See Antonides v. Commissioner, 893 F.2d               
          656, 659 (4th Cir. 1990), affg. 91 T.C. 686 (1988).                         
               For a taxpayer to deduct expenses of an activity pursuant to           
          section 162, he must show that he engaged in the activity with an           
          actual and honest objective of making a profit.  Sec. 183;                  
          Ronnen v. Commissioner, 90 T.C. 74, 91 (1988); Fuchs v.                     
          Commissioner, 83 T.C. 79, 97-98 (1984); Dreicer v. Commissioner,            
          78 T.C. 642, 645 (1982), affd. without opinion 702 F.2d 1205                
          (D.C. Cir. 1983); sec. 1.183-2(a), Income Tax Regs.  Although a             
          reasonable expectation of profit is not required, the taxpayer's            
          profit objective must be bona fide.  Hulter v. Commissioner, 91             
          T.C. 371, 393 (1988); Beck v. Commissioner, 85 T.C. 557, 569                
          (1985).  "Profit" in this context means economic profit,                    
          independent of tax savings.  Drobny v. Commissioner, 86 T.C.                
          1326, 1341 (1986).  Whether a taxpayer had an actual and honest             
          profit objective is a question of fact to be resolved from all              




Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  Next

Last modified: May 25, 2011