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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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Last modified: May 25, 2011