Robert & Diane Schwartz - Page 13




                                       - 13 -                                         
               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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