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Section 183(a) generally provides that if an activity
engaged in by an individual is not entered into for profit, no
deduction attributable to the activity shall be allowed, except
as otherwise provided in section 183(b). An “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. 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
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Last modified: May 25, 2011