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On September 26, 2000, respondent sent petitioners a notice
of deficiency. Respondent determined that petitioners were not
allowed deductions relating to losses from Diane Racing under
section 183 because Diane Racing was not an activity entered into
for profit. On December 26, 2000, petitioners filed a petition
with this Court disputing respondent’s determination.
OPINION
Section 183(a) provides generally that, if an activity is
not engaged in for profit, no deduction attributable to such
activity shall be allowed except as provided in section 183(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.”
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 that the taxpayer must show
that the taxpayer 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 (D.C.
Cir. 1983); see Dunn v. Commissioner, 70 T.C. 715, 720 (1978),
affd. 615 F.2d 578 (2d Cir. 1980).
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