S.K. Johnston, III and Julie N. Boyle f.k.a. Julie N. Johnston, et al. - Page 13

                                               - 13 -                                                 

           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 test for determining whether an individual is carrying                           
           on a trade or business under section 183 is whether the                                    
           taxpayer's actual and honest objective in engaging in the                                  
           activity is to make a profit.  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.  While a taxpayer's                               
           expectation of profit need not be reasonable, there must be a                              
           good faith objective of making a profit.  Allen v. Commissioner,                           
           72 T.C. 28, 33 (1979); sec. 1.183-2(a), Income Tax Regs.                                   
                 To determine whether the requisite profit objective exists,                          
           we examine a variety of objective facts.   Engdahl v.                                      
           Commissioner, 72 T.C. 659, 666 (1979); sec. 1.183-2(a), Income                             
           Tax Regs.  Thus, the determination of whether the requisite                                
           profit objective exists depends upon all the surrounding facts                             
           and circumstances of the case.  Keanini v. Commissioner, 94 T.C.                           
           41, 46 (1990); sec. 1.183-2(b), Income Tax Regs.  The burden of                            
           proving the requisite profit objective is on the taxpayer. Rule                            
           142(a); Allen v. Commissioner, supra at 34.                                                

           7(...continued)                                                                            
           allowable only if such activity is 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 paragraph (1)."                                                     



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