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As a result of an audit examination, on May 6, 1998,
respondent issued a notice of deficiency to petitioners in which
respondent determined that, for 1994, 1995, and 1996,
petitioner’s airplane activity was not engaged in for profit
under section 183, and respondent disallowed the claimed losses
for each of those years. Also, respondent determined accuracy-
related penalties under section 6662.
Respondent has conceded that the claimed expenses relating
to petitioner’s airplane activity have been substantiated for the
years at issue and that during the years 1986 through 2001
petitioner spent approximately $1 million of his own funds on his
airplane activity.
During a prior audit of petitioners’ 1989, 1990, and 1991
Federal income tax returns, respondent did not raise an issue as
to petitioner’s profit objective relating to petitioner’s
airplane activity.
OPINION
Activity not Engaged in for Profit
Generally, under section 183, if an activity is not engaged
in for profit, deductions for expenses relating to such activity
are allowable only to the extent of gross income derived from the
activity.
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Last modified: May 25, 2011