Business Homework Solutions
#110906
Income tax rules regarding hobby losses
Dr. Giles is a dentist who deducted losses for her horse breeding activity for 15 years. In 14 of the 15 years, she sustained a loss for tax reporting purposes. As a result of an audit, she took the IRS to task in Tax Court in 2006. She lost her case because she did not satisfactorily demonstrate the activity was a viable business.
What are some of the factors which can be used to convince the IRS that a business has a profit motive and is not a hobby?
The solution gives the code section and the nine rules cited in the regulations for the determination of whether a business is engaged in for profit. The nine factors commonly used by the IRS are again listed in a recent cited court case.
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