Clarence A. Hunt, Jr. - Page 4

                                                 - 4 -                                                    

                  Section 183(a) provides generally that, if an activity is                               
            not engaged in for profit, no deduction attributable to such                                  
            activity shall be allowed.  Section 183(b)(1), however, provides                              
            that deductions that are allowable without regard to whether the                              
            activity is engaged in for profit shall be allowed.  Section                                  
            183(b)(2) further 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."  The Court inquires whether                             
            the taxpayer is engaged in the activity with the "actual and                                  
            honest objective of making a profit."  Ronnen v. Commissioner, 90                             
            T.C. 74, 91 (1988); Dreicer v. Commissioner, 78 T.C. 642, 645                                 
            (1982), affd. without published opinion 702 F.2d 1205 (D.C. Cir.                              
            1983).  The taxpayer's expectation of profit need not be a                                    
            reasonable one, but there must be a good faith objective of                                   
            making a profit.  Dreicer v. Commissioner, supra at 645; sec.                                 
            1.183-2(a), Income Tax Regs.  The determination of whether the                                
            requisite profit objective exists is to be resolved on the basis                              
            of all the surrounding facts and circumstances of the case.                                   

Page:  Previous  1  2  3  4  5  6  7  8  9  Next

Last modified: May 25, 2011