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the gross income derived from the activity exceeds the deductions
allowed by section 183(b)(1).
An “activity not engaged in for profit” means any activity
other than one for which deductions are allowable for the taxable
year under section 162 or under paragraph (1) or (2) of section
212. Sec. 183(c). Section 162 allows a deduction for all the
ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business. In the case
of an individual, section 212 allows a deduction for all the
ordinary and necessary expenses paid or incurred during the
taxable year for the production or collection of income or for
the management, conservation, or maintenance of property held for
the production of income.
To deduct the expenses of an activity under either section
162 or section 212, a taxpayer 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); 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.
Beck v. Commissioner, 85 T.C. 557, 569 (1985); Golanty v.
Commissioner, 72 T.C. 411, 425-426 (1979), affd. without
published opinion 647 F.2d 170 (9th Cir. 1981). Whether a
taxpayer has an actual and honest profit objective is a question
of fact to be resolved from all the relevant facts and
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