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sustained. See Bessenyey v. Commissioner, 45 T.C. 261, 274
(1965) (“the goal must be to realize a profit on the entire
operation, which presupposes not only future net earnings but
also sufficient net earnings to recoup the losses which have
meanwhile been sustained in the intervening years.”), affd. 379
F.2d 252 (2d Cir. 1967). While Mrs. Smith asserts that her
business is now profitable, she no longer chooses to include the
expenses that she once considered a part of her business.
In the light of the foregoing, we hold that Mrs. Smith did
not have the requisite objective of making a profit with her
direct marketing activities. Thus, petitioners are not entitled
to deduct their losses from Mrs. Smith’s activities for the years
in issue. However, pursuant to the provisions of section 183(b),
petitioners are entitled to deduct expenses to the extent of
gross income from the activities.
B. Accuracy-Related Penalty Under Section 6662
Respondent also seeks to impose an accuracy-related penalty
under section 6662(a) and (b)(1) against petitioners because they
failed to exercise due care and disregarded the Internal Revenue
Code when they claimed personal expenses as business expense
deductions through a home-based business.
Section 6662 imposes an accuracy-related penalty equal to 20
percent of the portion of an underpayment attributable to, inter
alia, negligence or disregard of rules or regulations. Sec.
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Last modified: November 10, 2007