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1994 1995 1996
Gross receipts $1,140 $3,895 $336
Cost of goods sold 0 (3,500) 0
Gross profit 1,140 395 336
Show winnings 806 0 0
Gross income 1,946 395 336
Expenses (36,538) (36,628) (38,998)
Net profit (Loss) (34,592) (36,233) (38,662)
In the statutory notices of deficiency, respondent increased
petitioner's taxable income for 1994, 1995, and 1996 by $36,538,
$40,128, and $38,998, respectively. Respondent determined that
petitioner would be allowed Schedule A miscellaneous itemized
deductions for the expenses of her Appaloosa breeding and selling
activity to the extent of her gross income, but respondent did
not allow any such deductions on the ground that such allowable
deductions combined with her other itemized deductions are less
than her standard deductions for her respective taxable years.
Section 183(a) disallows any deduction attributable to an
activity not engaged in for profit, except as provided in section
183(b). Section 183(b)(1) provides that deductions which would
be allowable without regard to whether such activity is engaged
in for profit are to be allowed. Section 183(b)(2) further
provides that deductions which would be allowable only if such
activity were engaged in for profit are to be allowed, but only
to the extent that the gross income derived from such activity
for the taxable year exceeds the deductions allowable under
section 183(b)(1). For purposes of section 183, the term
"activity not engaged in for profit" means any activity other
than one with respect to which deductions are allowable for the
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