- 4 -
addressed the issue as couched by respondent and decided it on
that basis.
Section 162(a) allows deductions for ordinary and necessary
expenses paid or incurred in carrying on a trade or business.
Generally, no deduction is allowed for personal, living, or
family expenses. Sec. 262.
Section 183(a) disallows any deduction attributable to
activities not engaged in for profit except as provided under
section 183(b). Section 183(b)(1) allows those deductions which
otherwise are allowable regardless of profit objective. Section
183(b)(2) allows those deductions which would be allowable if the
activity were engaged in for profit, but only to the extent that
gross income attributable to the activity exceeds the deductions
permitted by section 183(b)(1). Section 183(c) defines “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.”
The basic standard for determining whether an expense is
deductible under sections 162 and 212 (and thus not subject to
the limitations of section 183) is the following: a taxpayer
must show that he or she engaged in or carried on the activity
with an actual and honest objective of making a profit. Ronnen
v. Commissioner, 90 T.C. 74, 91 (1988); Dreicer v. Commissioner,
78 T.C. 642, 645 (1982), affd. without opinion 702 F.2d 1205
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