John R. and Lois J. McCarthy - Page 15




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                  6. The Activity’s History of Income and/or Loss                                      
                  An activity’s history of income or loss may reflect whether                          
            the taxpayer has a profit objective.  See sec. 1.183-2(b)(6),                              
            Income Tax Regs.  Unless explained by customary business risks or                          
            unforeseen or fortuitous circumstances beyond the taxpayer’s                               
            control, a record of continuous losses beyond the period                                   
            customarily required to obtain profitability may indicate that                             
            the activity is not engaged in for profit.  See id.                                        
                  Petitioner has not earned any income from the writing                                
            activity, and he has incurred substantial losses during the 3                              
            years in issue.  It is not clear from the record the amount of                             
            losses that were claimed in prior years.6  During the years in                             
            issue, petitioners deducted $57,156 of losses attributable to the                          
            writing activity.  The magnitude of the activity’s losses in                               
            comparison with the lack of revenues is an indication that                                 
            petitioner did not have a profit motive with respect to the                                
            activity.  See Smith v. Commissioner, T.C. Memo. 1997-503; Burger                          
            v. Commissioner, T.C. Memo. 1985-523.  Furthermore, many                                   
            businesses do experience losses in their startup years, but they                           
            typically have a goal to realize a profit including enough net                             
            earnings to recoup the losses.                                                             

                  6  Petitioner stated that he wrote and submitted articles on                         
            a part-time basis from 1978 to 1991, after which he focused on                             
            his writing activity full time.  However, it is not clear from                             
            the record when petitioner started treating his activity as a                              
            Schedule C business.                                                                       





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