Victor A. and Marion W. Prieto - Page 15




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          appeal in this case would lie, has held that for a deduction to             
          be allowed under section 162 or section 212(1) or (2), a taxpayer           
          must establish that he engaged in the activity with the primary,            
          predominant, or principal purpose and intent of realizing an                
          economic profit independent of tax savings.  See Wolf v.                    
          Commissioner, 4 F.3d 709, 713 (9th Cir. 1993), affg. T.C. Memo.             
          1991-212; Indep. Elec. Supply, Inc. v. Commissioner,                        
          781 F.2d 724, 726 (9th Cir. 1986), affg. Lahr v. Commissioner,              
          T.C. Memo. 1984-472.                                                        
               The expectation of profit need not have been reasonable, but           
          it must be bona fide.  See Golanty v. Commissioner, 72 T.C. 411,            
          426 (1979), affd. without published opinion 647 F.2d 170 (9th               
          Cir. 1981); sec. 1.183-2(a), Income Tax Regs.  Whether the                  
          requisite profit objective exists is determined by looking to all           
          the surrounding facts and circumstances.  Golanty v.                        
          Commissioner, supra at 426; sec. 1.183-2(b), Income Tax Regs.               
          Greater weight is given to objective facts than to a taxpayer's             
          mere after-the-fact statement of intent.  Indep. Elec. Supply,              
          Inc. v. Commissioner, supra; 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.  Petitioners bear the burden of                
          proof.  Rule 142(a).5                                                       


               5  Cf. sec. 7491(a), effective for court proceedings arising           
          in connection with examinations commencing after July 22, 1998.             
                                                             (continued...)           





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