James R. and Myrtice L. Peacock - Page 12

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          conclude that neither section 7491(a) nor (c) applies here.                 
          Section 7491(a) places the burden of proof upon the Commissioner            
          in specified circumstances.  Section 7491(c) places the burden of           
          production upon the Commissioner as to an individual’s liability            
          for a penalty or an addition to tax.                                        
          1.  Fishing Activity                                                        
               Section 183, which applies to activities engaged in by                 
          individuals or S corporations, generally limits the deductions              
          for an “activity not engaged in for profit” to the amount of                
          income received from the activity.  Sec. 183(a) and (b).  Section           
          183(c) defines an “activity not engaged in for profit” as “any              
          activity other than one with respect to which deductions are                
          allowable for the taxable year under section 162 or under                   
          paragraph (1) or (2) of section 212.”5  An activity is engaged in           
          for profit if the taxpayer entertained an actual and honest, even           
          though unreasonable or unrealistic, profit objective in engaging            
          in the activity.  Osteen v. Commissioner, 62 F.3d 356, 358 (11th            
          Cir. 1995), affg. on this issue T.C. Memo. 1993-519; 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.           

               5 Sec. 162 deals with “trade or business expenses”, which              
          are limited to “ordinary and necessary expenses paid or incurred            
          * * * in carrying on any trade or business”.  Sec. 212(1) and(2)            
          deals with expenses for the “production or collection of income”            
          or “management, conservation, or maintenance of property held for           
          the production of income”.                                                  

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