William E. and Barbara J. Flanagin - Page 9




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          with the information required to make informed business                      
          decisions.  See Burger v. Commissioner, 809 F.2d 355, 359 (7th               
          Cir. 1987), affg. T.C. Memo. 1985-523.  Without such a basis for             
          decision, any profit would be fortuitous, and losses would be                
          expected.  See id.                                                           
               Mr. Flanagin did not make any written forecasts or                      
          projections of future income.  He conducted his activity unaware             
          of the amount of revenue he could expect and had no concept of               
          what his ultimate costs might be or how he might achieve any                 
          degree of cost efficiency.                                                   
               Mr. Flanagin did not keep adequate records of the software              
          development activity.  The record demonstrates that Mr.                      
          Flanagin's actions were not businesslike and indicates that he               
          lacked a profit motive.                                                      
               B.  Expertise of Mr. Flanagin                                           
               A taxpayer's expertise, research, and study of an activity,             
          as well as his consultation with experts, may be indicative of a             
          profit intent.  See sec. 1.183-2(b)(2), Income Tax Regs.                     
          "Taxpayers should not only familiarize themselves with the                   
          undertaking, but should also consult or employ an expert, if                 
          needed, for advice on how to make the operation profitable."                 
          Burger v. Commissioner, supra at 359.                                        
               Mr. Flanagin had software writing experience; however, he               
          was not knowledgeable about the economics of the activity.  Mr.              
          Flanagin did not seek professional advice on the economic aspects            



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