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corporation's net operating losses.16 A net operating loss is
defined in section 172(c) as the excess of allowable deductions,
including ordinary and necessary business expenses deductible
under section 162, over gross income. Section 183, however,
limits the deductions of S corporations with respect to
activities that are not engaged in for profit.
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., interest and 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
16 Sec. 1366(a) provides, in relevant part, as follows:
SEC. 1366(a). Determination of Shareholder's Tax
Liability.--
(1) In general.--In determining the tax under this
chapter of a shareholder for the shareholder's taxable year
in which the taxable year of the S corporation ends * * *,
there shall be taken into account the shareholder's pro rata
share of the corporation's--
(A) items of income (including tax-exempt
income), loss, deduction, or credit the separate
treatment of which could affect the liability for tax
of any shareholder, and
(B) nonseparately computed income or
loss.
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