- 6 -
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 he or she
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. Profit means an economic
profit apart from any tax consequences. See Surloff v.
Commissioner, 81 T.C. 210, 233 (1983). Although a reasonable
expectation of a profit is not required, the taxpayer’s profit
objective must be actual and honest. Dreicer v. Commissioner,
supra at 645; sec. 1.183-2(a), Income Tax Regs. Whether a
taxpayer has an actual and honest profit objective is a question
of fact to be answered from all the relevant facts and
circumstances. Hulter v. Commissioner, supra at 393; Hastings v.
Commissioner, supra; sec. 1.183-2(a), Income Tax Regs. Greater
weight is given to objective facts than to a taxpayer’s mere
statement of intent. Dreicer v. Commissioner, supra at 645; sec.
1.183-2(a), Income Tax Regs. The taxpayer bears the burden of
establishing he or she had the requisite profit objective. Rule
142(a); Keanini v. Commissioner, 94 T.C. 41, 46 (1990); Hastings
v. Commissioner, supra.
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Last modified: March 27, 2008