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income from that particular activity, the practical effect of
section 183 is to preclude a taxpayer from deducting losses
incurred in such ventures.
An “activity not engaged in for profit” is defined in
section 183(c) as “any activity other than one with respect to
which deductions are allowable for the taxable year under section
162 [trade or business expenses] or under paragraph (1) or (2) of
section 212 [expenses incurred in the production of income].”
See also sec. 1.183-2(a), Income Tax Regs. Deductions are
allowable under these sections only if a taxpayer’s “primary
purpose and intention in engaging in the activity is to make a
profit.” Golanty v. Commissioner, 72 T.C. 411, 425 (1979), affd.
without published opinion 647 F.2d 170 (9th Cir. 1981). The
taxpayer’s expectation of a profit need not be reasonable, but he
or she must possess an “actual and honest objective of making a
profit.” Keanini v. Commissioner, 94 T.C. 41, 46 (1990) (quoting
Dreicer v. Commissioner, 78 T.C. 642, 644-645 (1982), affd.
without opinion 702 F.2d 1205 (D.C. Cir. 1983)).
Conversely, no deductions are allowable under section 162 or
212 for “activities which are carried on primarily as a sport,
hobby, or for recreation.” Sec. 1.183-2(a), Income Tax Regs. In
determining the category into which a particular venture falls,
the taxpayer bears the burden of establishing the requisite
profit objective. Keanini v. Commissioner, supra at 46; Golanty
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