-13-
gross income from the activity exceeds the deductions allowable
under section 183(b)(1).
We follow the Court of Appeals opinion squarely in point
when appeal from our decision would lie to that court absent
stipulation by the parties to the contrary. Golsen v.
Commissioner, 54 T.C. 742 (1970), affd. 445 F.2d 985 (10th Cir.
1971). Taxpayers residing in the Ninth Circuit, such as
petitioners, must prove they conducted their activities with the
primary, predominant, or principal purpose of realizing an
economic profit independent of tax savings. See Wolf v.
Commissioner, 4 F.3d 709, 713 (9th Cir. 1993), affg T.C. Memo.
1991-212; Polakof v. Commissioner, 820 F.2d 321, 323 (9th Cir.
1987), affg. T.C. Memo. 1985-197; Indep. Elec. Supply, Inc. v.
Commissioner, 781 F.2d 724, 726 (9th Cir. 1986), affg. Lahr v.
Commissioner, T.C. Memo. 1984-472.
Whether a taxpayer has the primary, predominant, or
principal purpose of realizing an economic profit independent of
tax savings is determined on the basis of all surrounding facts
and circumstances. Polakof v. Commissioner, supra at 324; Indep.
Elec. Supply, Inc. v. Commissioner, supra at 727; Dreicer v.
Commissioner, 78 T.C. 642, 645 (1982), affd. without published
opinion 702 F.2d 1205 (D.C. Cir. 1983); 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 Tax Regs.
Page: Previous 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 NextLast modified: May 25, 2011