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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.
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Last modified: May 25, 2011