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to deduct activity expenses in excess of activity income.
Petitioners bear the burden of proof. Rule 142(a).
Section 183(a) provides the general rule which disallows all
deductions attributable to activities "not engaged in for
profit." Section 183(b)(1), however, qualifies the general rule
by allowing those deductions otherwise allowable regardless of
profit objective, e.g., State and local taxes. Further, section
183(b)(2) allows those deductions which would be allowable if the
activity were engaged in for profit, but only to the extent that
gross income attributable to the activity exceeds the deductions
permitted by section 183(b)(1).
Section 183(c) defines a section 183 activity 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." Deductions under sections
162 or 212(1) or (2) require the "actual and honest objective of
making a profit." Dreicer v. Commissioner, 78 T.C. 642, 645
(1982), affd. without opinion 702 F.2d 1205 (D.C. Cir. 1983). A
taxpayer's expectation of profit, however, need not be
"reasonable." Dreicer v. Commissioner, supra at 644-645; sec.
1.183-2(a), Income Tax Regs.
Whether a taxpayer has an actual and honest profit objective
is decided on the basis of all surrounding circumstances.
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Last modified: May 25, 2011