Kenneth D. Shepherd and Martha A. Gregory - Page 5

                                        - 5 -                                         
          of section 162(a) generally depends upon whether the taxpayer's             
          purpose for engaging in the activity is for income or profit, and           
          whether the activity is conducted with continuity and regularity.           
          Commissioner v. Groetzinger, 480 U.S. 23, 35 (1987).  Section               
          183(a) disallows any deductions attributable to "activities not             
          engaged in for profit" except as provided in section 183(b).                
               Respondent argues that petitioners' research activity was              
          not engaged in for profit and any claimed deductions are subject            
          to the limitations of section 183(b).  Furthermore, respondent              
          contends that petitioners must substantiate any deductions                  
          claimed.  Rule 142(a).                                                      
               Whether a taxpayer engaged in an activity with the primary             
          purpose of making a profit is a question of fact.  Dreicer v.               
          Commissioner, 78 T.C. 642, 644-645 (1982), affd. without                    
          published opinion 702 F.2d 1205 (D.C. Cir. 1983); sec. 1.183-               
          2(a), Income Tax Regs.  While a reasonable expectation of profit            
          is not required, taxpayer's profit objective must be bona fide.             
          Taube v. Commissioner, 88 T.C. 464, 478-479 (1987).  In making              
          this determination, the Court gives more weight to objective                
          facts than to a taxpayer's mere statement of intent.  Dreicer v.            
          Commissioner, supra at 645; sec. 1.183-2(a), Income Tax Regs.               
               Section 1.183-2(b), Income Tax Regs., provides a                       
          nonexclusive list of factors to be considered in determining                
          whether an activity is engaged in for profit.  The factors                  
          include:  (1) The manner in which the taxpayer carried on the               




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

Last modified: May 25, 2011