- 10 - share of SFIS’s loss. In the statutory notice of deficiency, respondent disallowed the deductions in full. Respondent determined that, because the activities of SFIS were not operated with a profit motive during the years in issue, the allowable deductions for expenses related thereto are limited to the amount of SFIS’s income in each year. Discussion Under section 162(a), a taxpayer may deduct the ordinary and necessary expenses paid or incurred during the taxable year in carrying on its trade or business. A taxpayer is engaged in a trade or business if the taxpayer is involved in the activity with continuity and regularity and with the primary purpose of making a profit. Commissioner v. Groetzinger, 480 U.S. 23, 35 (1987). If an activity of a taxpayer is not conducted for profit, section 183(a) disallows all deductions related thereto, except as provided by section 183(b). An activity is not conducted for profit if it is one with respect to which deductions are not allowable under section 162 or section 212(1) or (2).2 Sec. 183(c). If an activity of a taxpayer is not for profit, section 183(b) allows the taxpayer to deduct (1) expenses which otherwise would have been allowable without regard to profit motive, and 2Sec. 212 applies only to individuals and is therefore inapplicable to SFIS.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Next
Last modified: May 25, 2011