Judith A. Sanders-Castro - Page 8

                                        - 7 -                                         
               After concessions by respondent, only two issues remained at           
          trial.  The first issue was whether petitioner operated her horse           
          showing and breeding activities with the objective of making a              
          profit.  The second issue was whether the addition to tax under             
          section 6651(a)(1) is appropriate.  We discuss both issues in               
          detail below.                                                               
                                     Discussion                                       
          1.  Horse Showing and Breeding Activities                                   
               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).               
          Deductions are not allowable for activities that a taxpayer                 
          carries on primarily for sport, as a 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, Trade or Business           
          Expenses, or section 212, Expenses for Production of Income, and            
          not subject to the limitations of section 183, a taxpayer must              
          show that the taxpayer 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             






Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  Next

Last modified: May 25, 2011