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for a net loss of $127,341. On Schedule F for 1997, petitioners
reported no gross income and deducted expenses in the amount of
$124,584, for a net loss of $124,584. Respondent disallowed
petitioners’ 1996 and 1997 Schedule F loss deductions in full
because petitioners did not substantiate their deductions and
because petitioners were not engaged in an activity for profit.
Due to the fact that petitioners did not substantiate their
deductions, section 7491(a) is not applicable. Therefore,
petitioners have the burden of proof with respect to these
determinations. Rule 142(a).
We first address whether petitioners were not engaged in an
activity for profit. Section 183(a) disallows deductions
attributable to an activity not engaged in for profit, except as
provided under section 183(b). For an activity not engaged in
for profit, section 183(b)(1) allows deductions that would be
allowable without regard to whether or not an activity is engaged
in for profit. Section 183(b)(2) allows deductions that 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 allowable under section 183(b)(1). 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.”
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