- 17 -
an activity not engaged in for profit, section 183(b)(1) allows
deductions which are otherwise allowable without regard to
whether the 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 of gross income
received from the activity. 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.”10
The Court of Appeals for the Ninth Circuit, to which an
appeal of this case would lie absent stipulation otherwise, has
held that for a deduction to be allowed under section 162 or
section 212(1) or (2), the taxpayer must establish that she
engaged in the activity with “the predominant, primary or
principal objective” of realizing an economic profit independent
of tax savings. Wolf v. Commissioner, 4 F.3d 709, 713 (9th Cir.
1993), affg. T.C. Memo. 1991-212; see also Skeen v. Commissioner,
864 F.2d 93, 94 (9th Cir. 1988)), affg. Patin v. Commissioner, 88
10 Sec. 162 allows a taxpayer to deduct ordinary and
necessary expenses of carrying on the taxpayer’s trade or
business. Pars. (1) and (2) of sec. 212 allow the taxpayer to
deduct expenses incurred in connection with an activity engaged
in for the production or collection of income, or for the
management, conservation, or maintenance of property held for the
production of income.
Page: Previous 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 NextLast modified: May 25, 2011