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For a taxpayer to deduct expenses of an activity under
section 162, he must show that he engaged in the activity with an
actual and honest objective of making a profit. Ronnen v.
Commissioner, 90 T.C. 74, 91 (1988); Fuchs v. Commissioner, 83
T.C. 79, 98 (1984); Dreicer v. Commissioner, 78 T.C. 642, 645
(1982), affd. without opinion 702 F.2d 1205 (D.C. Cir. 1983);
sec. 1.183-2(a), Income Tax Regs. Although a reasonable
expectation of profit is not required, the taxpayer’s profit
objective must be bona fide. Hulter v. Commissioner, 91 T.C.
371, 393 (1988); Beck v. Commissioner, 85 T.C. 557, 569 (1985).
“Profit” in this context means economic profit, independent of
tax savings. Drobny v. Commissioner, 86 T.C. 1326, 1341 (1986).
Whether a taxpayer has an actual and honest profit objective is a
question of fact to be resolved from all the relevant facts and
circumstances. Keanini v. Commissioner, 94 T.C. 41, 46 (1990);
sec. 1.183-2(b), Income Tax Regs. Greater weight is given to
objective facts than to a taxpayer’s statement of intent. Thomas
v. Commissioner, 84 T.C. 1244, 1269 (1985), affd. 792 F.2d 1256
(4th Cir. 1986); sec. 1.183-2(a), Income Tax Regs.
Section 1.183-2(b), Income Tax Regs., provides the following
nonexclusive list of factors to consider in determining whether
an activity is engaged in for profit: (1) The manner in which
the taxpayer carried on the activity; (2) the expertise of the
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Last modified: May 25, 2011