- 10 -
“activity not engaged in for profit” means any activity other
than one for which deductions are allowable under section 162 or
under paragraphs (1) and (2) of section 212. See sec. 183(c).
Section 162(a) allows a deduction for all ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on a trade or business. To be engaged in a trade or
business within the meaning of section 162, “the taxpayer must be
involved in the activity with continuity and regularity and * * *
the taxpayer’s primary purpose for engaging in the activity must
be for income or profit.” Commissioner v. Groetzinger, 480 U.S.
23, 35 (1987).
In order for taxpayers to deduct expenses of an activity
pursuant to section 162, profit must be their primary or dominant
purpose for engaging in the activity. See Wolf v. Commissioner,
4 F.3d 709, 713 (9th Cir. 1993), affg. T.C. Memo. 1991-212;
Polakof v. Commissioner, 820 F.2d 321 (9th Cir. 1987), affg. per
curiam T.C. Memo. 1985-197; Independent Elec. Supply, Inc. v.
Commissioner, 781 F.2d 724, 726 (9th Cir. 1986), affg. Lahr v.
Commissioner, T.C. Memo. 1984-472; Carter v. Commissioner, 645
F.2d 784, 786 (9th Cir. 1981), affg. T.C. Memo. 1978-202; Hirsch
v. Commissioner, 315 F.2d 731, 736 (9th Cir. 1963), affg. T.C.
Memo. 1961-256. Whether the taxpayer had the requisite profit
objective is a question of fact to be resolved from all relevant
facts and circumstances. See, e.g., Drobny v. Commissioner, 86
T.C. 1326, 1341 (1986), affd. 113 F.3d 670 (7th Cir. 1997); sec.
1.183-2(b), Income Tax Regs. Profit in this context means
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Next
Last modified: May 25, 2011