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Section 183 specifically precludes deductions for activities
not engaged in for profit except to the extent of the gross
income derived from such activities. Sec. 183(a) and (b)(2).
For example, deductions are not allowable for activities that a
taxpayer carries on primarily as a sport or hobby or for
recreation. Sec. 1.183-2(a), Income Tax Regs. For a taxpayer’s
expenses in an activity to be deductible under section 162 or
section 212, and not subject to the limitations of section 183,
the taxpayer must show that he engaged in the activity with an
actual and honest objective of making a profit. Hulter v.
Commissioner, 91 T.C. 371, 392 (1988); Dreicer v. Commissioner,
78 T.C. 642, 645 (1982), affd. without opinion 702 F.2d 1205
(D.C. Cir. 1983); Hastings v. Commissioner, T.C. Memo. 2002-310.
Although a reasonable expectation of a profit is not required,
the taxpayer’s profit objective must be actual and honest.
Dreicer v. Commissioner, supra at 645; sec. 1.183-2(a), Income
Tax Regs. Whether a taxpayer has an actual and honest profit
objective is a question of fact to be resolved from all the
relevant facts and circumstances. Hulter v. Commissioner, supra
at 393; Hastings v. Commissioner, supra; sec. 1.183-2(a), Income
Tax Regs. Greater weight is given to objective facts than to a
taxpayer’s mere statement of intent. Dreicer v. Commissioner,
supra at 645; sec. 1.183-2(a), Income Tax Regs. The taxpayer
bears the burden of establishing the requisite profit objective.
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Last modified: May 25, 2011