William C. and Dorothy M. Smith - Page 11




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          activities had changed such that she was now primarily using the            
          Internet to conduct her activities.                                         
                                       OPINION                                        
          A.   Section 183 Generally                                                  
               Section 183 restricts taxpayers from deducting losses from             
          an activity that is not “engaged in for profit”.  Sec. 183(a).              
          An activity is engaged in for profit if the taxpayer entertained            
          an actual and honest profit objective in engaging in the                    
          activity.  Surloff v. Commissioner, 81 T.C. 210, 233 (1983);                
          Dreicer v. Commissioner, 78 T.C. 642, 645, (1982), affd. without            
          opinion 702 F.2d 1205 (D.C. Cir. 1983); sec. 1.183-2(a), Income             
          Tax Regs.  The taxpayer’s expectation of profit must be in good             
          faith.  Allen v. Commissioner, 72 T.C. 28, 33 (1979) (citing                
          section 1.183-2(a), Income Tax Regs.).                                      
               In deciding whether Mrs. Smith operated her direct marketing           
          activities for profit, we consider the following nine factors:              
          (1) The manner in which she carried on the activity; (2) her                
          expertise or that of her advisers; (3) the time and effort she              
          expended in carrying on the activity; (4) the expectation that              
          the assets she used in the activity may appreciate in value; (5)            
          her success in carrying on other similar or dissimilar                      
          activities; (6) her history of income or loss with respect to the           
          activity; (7) the amount of occasional profits, if any, which she           
          earned; (8) her financial status; and (9) whether elements of               







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