-8-
engaged in for profit shall be allowed under section 183(b)(2),
but only to the extent that the gross income from the activity
exceeds the deductions allowable under section 183(b)(1).
Petitioner has the burden of proving that his actual and
honest objective in engaging in the activity was to make a
profit. See Evans v. Commissioner, 908 F.2d 369, 373 (8th Cir.
1990), revg. T.C. Memo. 1988-468; Dreicer v. Commissioner, 78
T.C. 642, 645 (1982), affd. without published opinion 702 F.2d
1205 (D.C. Cir. 1983).
We begin with the burden of proof. We ruled at trial that
the burden of proof did not shift to respondent under section
74913 because petitioner failed to provide respondent the general
ledgers he maintained during the years at issue as well as his
tax returns for the years prior and subsequent to the years at
issue. Therefore, the burden remains with petitioner.
We now focus on whether petitioner had an actual and honest
profit objective in drag racing. Whether a taxpayer has an
actual and honest profit objective is determined on the basis of
all surrounding facts and circumstances. Dreicer v.
Commissioner, supra at 645; sec. 1.183-2(b), Income Tax Regs.
While a taxpayer’s expectation of profit need not be reasonable,
there must be a good faith objective of making a profit. Allen
v. Commissioner, 72 T.C. 28, 33 (1979); sec. 1.183-2(a), Income
3Sec. 7491 applies to examinations commencing after July 22,
1998, and therefore applies here. See Internal Revenue Service
Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001,
112 Stat. 726.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011