§183 — Activities not engaged in for profit

We note that the article states that “[t]he similarity test was clearly overruled in Collins.” Id.

485, 493 (2017), supplementing and overruling in part 147 T.C.

Accordingly, the presumption does not apply here.

The remaining CLC expenses were aggregated and permitted as deductions to the extent allowed under section 183(b)(2). Consequently, we decline to address the Gregorys’ motion to the extent it requests the Court to hold that section 67(a) does not apply to section 183(b)(1), as we find that issue is moot; the section 164(a) deductions for tax expenses permitted via section 183(b)(1) were not treated as though they were miscellaneous itemized deductions subject to the 2-percent floor.

The purpose ofthe material participation test is to distinguish actively participating in the operation ofa business from investor- type activity. The fact that Mr. Kline skippered the four Kline charters and/or that the charter participants were his friends and acquaintances might be ofsome importance ifthis was a not-for-profit or section 183 case, but respondent has conceded that petitioners were engaged in a business and that is not the question for our consideration.

Therefore, SMF's activities are factually distinguishable from the farm activities in Dodge.

Therefore, SMF's activities are factually distinguishable from the farm activities in Dodge.

The purpose ofthe material participation test is to distinguish actively participating in the operation ofa business from investor- type activity. The fact that Mr. Kline skippered the four Kline charters and/or that the charter participants were his friends and acquaintances might be ofsome importance ifthis was a not-for-profit or section 183 case, but respondent has conceded that petitioners were engaged in a business and that is not the question for our consideration.

Therefore, SMF's activities are factually distinguishable from the farm activities in Dodge.

- 14 - activity exceeds the deductions for any two ofseven consecutive taxable years, the activity is presumed to be engaged in for profit for purposes ofsection 183 unless the Commissioner establishes to the contrary. Sec. 183(d); sec. 1.183-1(c)(1), Income Tax Regs. Because petitioners claimed losses for each oftheir taxable years 2005, when Ms. Craig began her horse activity, through 2011, the presump- tion under section 183(d) does not apply in the instant case.

Petitioners are deemed to have used the 265 Cold Soil property for personal purposes throughout the subject years, and - 97 - [*97] we therefore need not decide whether section 183 applies for that property. See sec. 280A(f)(3) (where section 280A(a) applies with respect to the use ofa dwelling unit for any year, section 183 generally does not apply to that unit for that year); sec.

The parties spend undue time disputing the applicability of section 183 to Knutsen's doll business and, more specifically, I whether Knutsen had the profit motive described in that section so as not to preclude Knutsen from deducting certain amounts attributable to its doll business. The parties' reliance upon section 183 is misplaced. Section 183 does not apply where, as here, the taxpayer (Knutsen) is a C corporation.

9 It is true, as respondent notes, that section 183 does not apply just to "wealthy individuals", Ranciato v .

Miller engaged in the horse breeding activity during 2002, 2003, and 2004 with the actual and honest objective of making a profit and section 183 is inapplicable in this case .

Under section 183, his horse activity was not engaged in for profit, and petitioner is not permitted to deduct losses from his horse activity. II. Additions to Tax Section 6651(a)(1) imposes an addition to tax for a taxpayer’s failure to file a required return on or before the specified filing date, including extensions. The amount of the liability is based upon a percentage of the tax required to be shown on the return. Sec. 6651(a)(1). The addition to tax is inapplicable, however, if the taxpa

We need not decide the Youngs’ contention in this regard because our findings and analysis do not depend on which party bears the burden of proof.

We express no opinion regarding CFF's operations for any taxable year other than 2013.

In the present case, we need not decide whether it is appropriate to exercise our discretion under the Cohan rationale because the maximum deduction to which petitioner might be entitled under section 183(b) for 1997; i.e., $1,400, would have no tax effect.

Alternatively, a ‘new theory’ is a new argument about the existing evidence.” (Citations omitted.) We disagree with petitioners’ position.

We do not agree entirely with any of those arguments.

We do not agree entirely with any of those arguments.

Section 183(b)(2) allows deductions that would be allowable if the activity were 4 Irrespective of our decision to sustain respondent’s determination with respect to petitioner’s basketball school activity, we disagree with respondent’s recharacterization of the income as listed on petitioner’s Schedules C for RBS for each of the taxable years in issue on the grounds that the income was received from petitioner’s employer as reimbursement for employee business expenses.

Conclusion Considering all the facts and circumstances and weighing the factors analyzed above, we hold that petitioner did not conduct his Ovium activity in a businesslike manner and he did not engage in that activity with the requisite profit objective during the years at issue.

Although section 183 applies at the corporate level with respect to the activities of an S corporation, sec.

(CCH) at 1172 (“The profit-objective analysis under section 183 governs particular [tax] shelter investments.”).

On September 26, 2016, respondent issued the FPAA disallowing WP Realty's reported losses for 2011-14 pursuant to section 183.

In his answer respondent asserted a new theory, to wit, that petitioners did not engage in their horse activity for profit pursuant to section 183.

Pursuant to section 183(d), an activity is presumed to be engaged in for profit ifthe activity produces gross income in excess ofdeductions for any three of the five consecutive years which end with the taxable year, unless the - 11 - [*11] Commissioner establishes to the contrary.

Pursuant to section 183(a), ifan activity is not engaged in for profit, no deduction attributable to that activity is allowed except to the extent provided by section 183(b).

Pursuant to section 183(d), an activity is presumed to be engaged in for profit ifthe activity produces gross income in excess ofdeductions for any three of - 20 - [*20] the five consecutive years which end with the taxable year, unless the Commissioner establishes to the contrary.

Petitioners contend that petitioner husband's business was a trade or business pursuant to section 162 and not an activity not engaged in for profit pursuant to section 183 and that the expenses were ordinary and necessary.

Pursuant to section 183(d), an activity is presumed to be engaged in for profit ifthe activity produces gross income in excess ofdeductions for any three of - 20 - [*20] the five consecutive years which end with the taxable year, unless the Commissioner establishes to the contrary.

Petitioners contend that petitioner husband's business was a trade or business pursuant to section 162 and not an activity not engaged in for profit pursuant to section 183 and that the expenses were ordinary and necessary.

On September 11, 2014, respondent issued petitioners a notice ofdeficiency for 2011 that (1) disallowed Schedule C expense deductions pursuant to section 183 and (2) determined petitioners were liable for an accuracy- related penalty under section 6662(a).

Accordingly, we hold that she is not entitled to an itemized deduction on Schedule A for her tax-preparation fees.

Pursuant to section 183(a), ifan activity is not engaged in for profit, no deduction attributable to that activity is allowed except to the extent provided by section 183(b).

Pursuant to section 183(a), ifan activity is not engaged in for profit, no deduction attributable to that activity is allowed except to the extent provided by section 183(b).

Respondent believes that petitioner's second Schedule C activity, his sports memorabilia activity, was not an activity he - 11 - [*11] engaged in for profit, so that, pursuant to section 183, described infra, he may not deduct his losses from that activity in excess ofhis profits from the activity.

413, 417 (1997) ("[D]eductions solely permitted pursuant to § 183(b)(2) are miscellaneous itemized deductions."); sec.

Respondent believes that petitioner's second Schedule C activity, his sports memorabilia activity, was not an activity he - 11 - [*11] engaged in for profit, so that, pursuant to section 183, described infra, he may not deduct his losses from that activity in excess ofhis profits from the activity.

413, 417 (1997) ("[D]eductions solely permitted pursuant to § 183(b)(2) are miscellaneous itemized deductions."); sec.

Respondent believes that petitioner's second Schedule C activity, his sports memorabilia activity, was not an activity he - 11 - [*11] engaged in for profit, so that, pursuant to section 183, described infra, he may not deduct his losses from that activity in excess ofhis profits from the activity.

We hold that he did not.

Scope ofthe Activity The regulations specify that, in determining whether section 183 applies for a particular activity, a threshold determination must be made as to the scope ofthat activity.

Accordingly, we hold that petitioners are liable for the accuracy-related penalties under section 6662(a) for their underpayments oftax for the years at issue.

Scope ofthe Activity The regulations specify that, in determining whether section 183 applies for a particular activity, a threshold determination must be made as to the scope ofthat activity.

The only issue for us to decide is whether petitioners' travel guide and video sales activities were "activit[ies] not engaged in for profit" under section 183.1 We hold that petitioners did not engage in those activities for profit.

Accordingly, we hold that the dog breeding activity was "not engaged in for profit" within the meaning ofsection 183 during the year in issue.

Respondent cóntends that petitioner is not entitled to a deduction because he failed to properly substantiate these expenses and because the expenses are not deductible pursuant to section 183." As we stated above, deductions are a matter oflegislative grace, and the taxpayer bears the burden ofproving that he is entitled to any claimed deductions, including the burden ofsubstantiation.

We hold that they did not engage in their record label activity with a bona fide profit objective and are therefore not entitled to deduct losses from the activity.

Bailey's yachtrental activity and airplane remanufacturing activity were engaged in for profit pursuant to section 183; (iii) whether and to whalextenthis Íncome was fully reported or over-feported; (iv) whether and to what extent his deductions are substantiated and deductible; and (v) whether he is liable for the addition to tax under section 6651(a)(1) and the accuracy-relatedpenalty under section 666Z Éo(cid:16

In order for expenditures attributable to an activity to be deductible, section 183 requires taxpayers to show that they engaged in the activity for profit.

Bailey's yachtrental activity and airplane remanufacturing activity were engaged in for profit pursuant to section 183; (iii) whether and to whalextenthis Íncome was fully reported or over-feported; (iv) whether and to what extent his deductions are substantiated and deductible; and (v) whether he is liable for the addition to tax under section 6651(a)(1) and the accuracy-relatedpenalty under section 666Z Éo(cid:16

We hold that petitioners were not engaged in the trade or business.

The profit-objective analysis under section 183 governs particular shelter investments.

- 8 - incurred in carrying on a trade or business engaged in for profit pursuant to section 183; (2) the timeshare units were dwelling units used.by petitioners or other owners as residences pursuant to section 280A; or (3) the timeshare activity losses were passive losses pursuant to section 469.

We hold that petitioners were not engaged in the trade or business.

183 applies only to individuals and S corporations.

Profit Motive Section 183 provides that a deduction forsexpenses of an activity not conducted for profit cannot, gene(ally, exceed gross income from the activity.4 Zhang did not repor any gross income *Sec.

For the foregoing reasons, we hold that the losses claimed from petitioners' farming activity for 2002, 2003, and 2004 are not limited by section 183.

The notice determined that, pursuant to section 183, the losses arising from petitioners' Amway activity in excess of the gross income derived therefrom were not allowable, resulting in the elimination of a $25,477 loss claimed.

This treatment is equivalent to the treatment for substantiated deductions in activities not engaged in for profit pursuant to section 183(b)(2) .

We hold that she did: not conduct her horse activity for profit and is therefore not entitled to deduc t losses from the activity on her returns .

We hold that petitioners did conduct their horse activity for profit.

Accordingly, we hold that petitioners' drag racing activity was not engaged in for profit during 2004, 2005, and 2006, and section 183(b)(2) prohibits any deduction of expenses' greater than the gross income derived from the activity .

I - 22 - Accordingly, we hold that petitioner's aircraft maintenance activity did not constitute a trade or business or profit seeking activity in 2002 or 2003 .

Accordingly, we hold that respondent correctly applied section 183 by allowin g expense deductions only to the extent of petitioners' income from 'charter fishing .

Accordingly, we hold that petitioners' horse activity during the years in issue was an activity not engaged in for profit within the meaning of section 183 .

We hold, therefore, that in Knudsen I we did not err in declining to allocate the burden of proof under section 7491(a).

The central issue for decision is whether petitioner ' s activities were engaged in with a profit objective as contemplated by section 183 .2 For the reasons discussed below, we hold for respondent .

Accordingly, we hold that petitioners' Melaleuca activity during the years in issue was not an activity engaged in for profit within the meaning of sections 162 and 183 .

Claimed Losses From Aircraft Activity Pursuant to section 183(b), deductions with respect to an activity "not engaged in for profit!' generally are limited to the amount of gross income derived from such activity .

Having considered the factors listed in section 1 .183-2(b), Income Tax Regs .i, we hold that petitioners actually and honestly intended to make a profit in the activity Consequently, section 183 does .

Having considered the factors listed in section 1 .183-2(b), Income Tax Regs ., we hold that petitioners actually and honestl y i intended to make a profit in the activity .

ould be allowable without regard to whether the activity is engaged in for profit ; the second, provided by section 183(b)(2), permits deductions that would be allowable if the activity were engaged in for profit to the extent that the gross income from the activity exceeds the deductions allowable pursuant to section 183(b)(1) .

We hold that petitioner's horse showing and breeding activities were not engaged in for profit within the meaning of section 183 and that she is liable for the addition to tax under section 6651(a)(1) .

Because of the manner in which petitioners carried on their Amway activity, the lack of revenue, and the size and persistence of the continuing losses, we hold that petitioners’ Amway activity during the years in issue was not carried on for profit within the meaning of section 183, and petitioners are not permitted to deduct their losses from that activity.

Pursuant to section 183(b)(2), deductions are allowed for an activity not engaged in for profit, but only to the extent that gross income exceeds the deductions allowable under section 183(b)(1) without regard to whether or not the activity is engaged in for profit.

"If the taxpayer engages in two or more separate activities, deductions and income from each separate activity are not aggregated either in determining whether a particular activity is engaged in for profit or in applying section 183." Sec.

We hold that under section 183 petitioner is not entitled to the claimed Schedules C deductions in issue and we sustain respondent’s determinations.

We hold that she is not.

- 13 - Section 1.183-1(d)(1), Income Tax Regs., provides: If the taxpayer engages in two or more separate activities, deductions and income from each separate activity are not aggregated either in determining whether a particular activity is engaged in for profit or in applying section 183.

Because we hold that petitioners’ Amway activity was not an activity engaged in for profit within the meaning of section 183, we do not explicitly address the alternative issue as to whether petitioners are entitled to claimed Schedule C deductions for expenditures relating to their Amway activity.

Based on all of the facts and circumstances in the present case, we hold that petitioners did not engage in the Amway activity for profit within the meaning of section 183.

We hold that petitioners’ gold mining activity during the years in issue was an activity engaged in for profit within the meaning of section 183.

Petitioners contend that, pursuant to section 183(e), see infra, section 6511(c) controls by virtue of the filing of Forms 5213 with petitioners' 1990, 1991, 1992, and 1993 returns, because, say petitioners, Form 5213 is tantamount to an "extension by agreement" pursuant to section 6501(c)(4).

The issue for decision is whether petitioners’ ongoing horse-boarding activity was a bona fide business activity within the meaning of section 183 during the taxable years in issue.

After concessions, the issues remaining for decision are: (1) Whether petitioners' horse breeding and boarding activity during 1986 and 1988 was an "activity not engaged in for profit" within the meaning of section 183; (2) whether petitioner Kenneth E.

After these concessions, the sole remaining issue is whether section 183, concerning activities not engaged in for profit, limits the deductibility of an additional $205,514 of farm expenses petitioner incurred for 2016.

According to respondent, petitioners’ arrangement with the tenant allows for deductions only as permitted by section 183 because petitioners did not rent out the property with the intent to make a profit.

2014-74, to argue that “a transition from one career to another is a business activity” and repeatedly state that “a career is not a personal activity.” But Roberts focuses on section 183 and the existence of a profit motive in the taxpayer’s horse-racing business.

In the notice ofdeficiency respondent also determined that the activity was not entered into for profit under section 183. Respondent disallowed all ofthe claimed deductions associated with the activity and included the prize money won for each year as income to the Potters. The parties then stipulated that all ofthe deductions had been properly substantiated and that ifthe Court found that the activity was for profit then Potter Sales properly claimed the deductions. Through their stipulation t

In the notice ofdeficiency respondent also determined that the activity was not entered into for profit under section 183. Respondent disallowed all ofthe claimed deductions associated with the activity and included the prize money won for each year as income to the Potters. The parties then stipulated that all ofthe deductions had been properly substantiated and that ifthe Court found that the activity was for profit then Potter Sales properly claimed the deductions. Through their stipulation t

Section 183 and the regulations thereunder are not applicable to section 501(c)(7) organizations. S_e_e sec. 183; sec. 1.183-1(a) Income Tax Regs. Because petitioner did not intend to profit from its nonmember sales, it may not offset its investment income with losses relating to these sales. Respondent determined and established that petitioner is

1.183-2(a), Income Tax Regs. Pursuant to section 183(d), an activity that consists in major part ofthe breeding, training, showing, or racing ofhorses is presumed to be engaged in for profit ifthe activity produces income in excess ofdeductions for any two ofseven consecutive years unless the Commissioner establishes to the contrary. M Wadlow v. Commissioner, 112 T.C. 247, 250 (1999). Petitioner's horse racing activity failed to produce income in excess ofits deductions at any time during its op

Individual Income Tax Return, for taxable years 2008 to 2010 and determined petitioners were not operating the saddlebred horse activity for profit within the meaning of SERVED Dec 16 2015 -2- [*2] section 183.¹ Consequently, respondent determined deficiencies of$55,239, $49,512, and $32,049 in petitioners' Federal income tax for the taxable years 2008, 2009, and 2010, respectively.

- 31 - [*31] Section 183(d) creates a presumption ofa profit objective if, for three ofthe five taxable years ending with the year at issue, gross income exceeds the deductions attributable to the activity. In cases such as this one where the activity consists in major part ofthe breeding, training, showing, or racing ofhorses, a presumption ofprofit objective exists ifgross income exceeds the deductions for two ofthe seven taxable years ending with the year at issue. Sec. 183(d). Rock Ledge has

- 31 - [*31] Section 183(d) creates a presumption ofa profit objective if, for three ofthe five taxable years ending with the year at issue, gross income exceeds the deductions attributable to the activity. In cases such as this one where the activity consists in major part ofthe breeding, training, showing, or racing ofhorses, a presumption ofprofit objective exists ifgross income exceeds the deductions for two ofthe seven taxable years ending with the year at issue. Sec. 183(d). Rock Ledge has

However, we decide the section 183 issue on the preponderance ofthe evidence and, therefore, the burden ofproofis not relevant.

To decide whether a partnership engages in an activity for profit under section 183, we determine profit motive at the partnership level.

To decide whether a partnership engages in an activity for profit under section 183, we determine profit motive at the partnership level.

Respondent determined a deficiency in petitioners' joint Federal income tax for 2006 of$4 562 and an accuracy-related penalty of$912.2 The issues for decision are: (1) Whether petitioners engaged in their drag racing and horse breeding activities with the profit objective contemplated by section 183; (2) whetherpetitioners substantiated their expenses claimed with regard to those activities; and ( ) whetherpetitioners are liable for the accuracy-relatedpenalty under section 6662(a).

OPINION Section 183 restricts taxpayers from deducting losses from an activity that is not “engaged in for profit”.

Respondent also determined that petitioner's various undertakings on the family farm were not one activity for purposes of the section 183 analysis.

oner is liable for the increased rate of interest under section 6621(d). We hold that petitioner is not entitled to the claimed deduction for 1981 because the partnership he invested in was an activity not engaged in for profit within the meaning of section 183. Additionally, we hold that there was an underpayment of tax of at least $1,000 that was attributable to a valuation overstatement and that increased interest applies. ¹Unless otherwise indicated, all section references are to the Interna

,589.15 -- 20,917.83 1994 42,916.12 -- 8,583.22 1995 25,817.51 -- 5,163.50 After concessions, the issues for decision are: (1) Whether petitioners’ activity relating to cattle breeding was an activity not engaged in for profit within the meaning of section 183 for the years in issue, (2) whether petitioners are liable for an addition to tax under section 6651(a)(1) in 1990, and (3) whether petitioners are liable for accuracy-related penalties under section 6662(a) for the years in issue.

To deduct expenses of an activity under either section 162 or 212 (and thus avoid the limitations of section 183), a taxpayer must show that he or she engaged in or carried on the activity with the objective of making a profit.

an examination of petitioners’ Federal income tax returns for 1991, 1992, and 1993, respondent issued a notice of deficiency in which he determined that (1) petitioners’ horse activity in those years was an activity not engaged in for profit under section 183 and expenses claimed with respect to the horse activity were disallowed, except as allowed by section 183(b), (2) petitioners had failed to report commission income of $28,000, (3) computational adjustments to petitioners’ itemized deducti

Blue Ribbon for 1995 or 1996. - 13 - Respondent determined that Mr. Abbene's distributive share of Blue Ribbon's losses for each year in issue was zero because Blue Ribbon's activities were activities not engaged in for profit within the meaning of section 183. OPINION Petitioners claim entitlement to Mr. Abbene's share of Blue Ribbon's losses for the taxable years in issue. Petitioners argue that the losses are fully deductible because Blue Ribbon engaged in the activities of horse breeding, ho

ioner was not engaged in his automobile repair activity for profit. Before turning to the arguments of the parties, we shall address petitioners' contention that respondent has the burden of proof with respect to petitioner's profit objective under section 183. Although not altogether clear, we construe their argument to be based on section 183(d). As pertinent here, section 183(d) - 11 - generally creates a presumption that a taxpayer is engaged in an activity for profit if the gross income tha

Section 183(c) defines a section 183 activity as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." Deductions under sections 162 or 212(1) or (2) require the "actual and honest objective of making a profit." Dreicer v.

g. P, the sole shareholder of B, claimed losses passed through from B. R disallowed P’s losses on the ground that B’s activity was not engaged in for profit. 1. Held: B’s yacht chartering activity was not engaged in for profit within the meaning of sec. 183, I.R.C. 2. Held, further, sec. 6653(a), I.R.C., addition to tax is not sustained against P. 3. Held, further, sec. 6661, I.R.C., addition to tax is sustained against P. James S. Kaplan, for petitioner. Moira L. Sullivan and Paul T. Muniz, for

OPINION We must decide whether section 183 applies to petitioner's horse activity.

The issues for decision are: (1) Whether petitioners' medical corporation and ranching activity should be considered as one activity for purposes of section 183; (2) whether petitioners were engaged in their ranching activity with the objective of making a profit for purposes of section 183; and (3) whether petitioners are liable for the accuracy-related penalty for a substantial understatement of income tax under section 6662(a) and (b)(2).

r used the respective losses of $39,324 and $36,039 to offset income he received from Baltimore - 7 - County and Maryland Casualty Co. Respondent determined that petitioner's horse activity did not constitute an activity engaged in for profit under section 183. Accordingly, respondent disallowed the losses claimed by petitioner. OPINION We must decide whether section 183 applies to petitioner's horseracing and horse-breeding activity. Respondent maintains that petitioner's lack of a profit objec

However, under section 183(a), taxpayers may not deduct expenses for an activity “if such activity is not engaged in for profit.”2 When a partnership is involved in a section 183 analysis, the existence of the requisite profit objective is determined at the partnership level.

) SERVED JAN 3 1 2006 - 2 - (1) Whether petitioner's horse activity was an activity engaged in for profit within the meaning of section 183 during the years in issue; and (2) whether petitioner is liable for accuracy- related penalties under section 6662(a) for 1999 and 2000.

ax savings by offsetting the income from their primary occupations with their Schedule C losses. On the other hand, petitioners maintain that they entered into and carried out their Schedule C activities with an intent of 1 For purposes of applying sec. 183, we treat all three of petitioners’ Schedule C activities as a single activity. In ascertaining what constitutes an activity or activities of a taxpayer, we take into account the facts and circumstances of each case. See sec. 1.183-1(d), Inco

183-2(b)(5), Income Tax Regs. Petitioners have not engaged in similar activities for profit, - 25 - but petitioner had engaged in other successful activities. Respondent concedes that this factor favors petitioners. 6. Taxpayer's History of Income or Losses A history of substantial losses may indicate that the taxpayer did not conduct the act

183-2(b)(5), Income Tax Regs. Petitioner testified that she profitably bred dogs from 1966 to 1984. However, her testimony on this point was at best vague. She said she sold a total of about 10 to 15 puppies. Petitioners did not report any income from this activity on their tax returns that are in the record (1978 to 1984), and petitioners pro

rade or business because she did not engage in that activity with the requisite intent to profit. Consequently, according to respondent, petitioners are only entitled to deduct the expenses related to petitioner's writing activity as allowable under section 183. The test of whether a taxpayer conducted an activity for profit is whether he or she entered into, or continued, the activity with an actual or honest objective of making a profit. Keanini v. Commissioner, 94 T.C. 41, 46 (1990); Dreicer

1990 8,970.00 2,300.42 - 2 - After concessions,1 the issues remaining for decision are: (1) Whether petitioners' horse racing and breeding activity during 1987, 1988, 1989, and 1990 was an activity "not engaged in for profit" within the meaning of section 183; and (2) whether petitioners are liable for additions to tax pursuant to section 6651.2 FINDINGS OF FACT Some of the facts have been stipulated and are so found.

) respondent's adjustments regarding the Tahoe property in items d, e, and i in the Adjustment to Income (Supplemental Schedule) in the notice of deficiency are correct if the Court should find that the Tahoe rental activity was not for profit under sec. 183, I.R.C., and if the activity was for profit, then the loss limitations of sec. 280A(e), I.R.C., would apply; (3) they are not entitled to an interest deduction for $7,153 of points claimed for 1987; (4) $2,625 of interest claimed for 1987 wi

Section 183 and the regulations promulgated thereunder provide guidance as to whether a transaction is entered into for profit. The regulations set forth a nonexhaustive list of factors that may be considered in deciding whether a profit - 8 - objective exists. Some of these factors include: (1) The manner in which the taxpayer carries on the acti

It also stated that the ranch property was an “activity not engaged in for profit” within the meaning of section 183 during the years in issue.

"[Her] farm activity never moved beyond initial research and investigation into an operating business." While it is true that section 183(a) as a general rule disallows any deduction attributable to an activity not engaged in for profit and that the regulations implementing section 183 lay out nine nonexclusive factors for determining whether an activity is engaged in for profit, some of which favor Ms.

The main issue for decision is whether petitioners’ horse activity, undertaken through Bluestone Farms, LLC (Bluestone or Bluestone Farms), was an activity not engaged in for profit within the meaning of section 183 during 2010-2013.2 We must also decide whether petitioners may carry forward to the tax years at issue net operating losses allegedly arising chiefly from their horse activity in prior years.

The term “activity not engaged in for profit” is defined by section 183(c) as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” An activity overcomes the limitation set forth in section 183 if it “was entered into with the dominant hope and intent of realizing a profit.” Brannen v.

So we'll consider his holding the Firefly and showing it at exhibitions as a single activity under section 183 because oftheir nearly inextricable "organizational and economic interrelationship." Sec.

So we'll consider his holding the Firefly and showing it at exhibitions as a single activity under section 183 because oftheir nearly inextricable "organizational and economic interrelationship." Sec.

. Commissioner, T.C. Memo. 2012-165, slip op. at 14 (first citing Commissioner v. Groetzinger, 480 U.S. 23, 35 (1987); and then citing McManus v. Commissioner, T.C. Memo. 1987-457, © without published opinion, 865 F.2d 255 (4th Cir. 1988)); see also sec. 183 (generally providing that ifan activity is not engaged in for profit, then no deduction attributable to that activity is allowed). Focusing on the first factor, the taxpayer's profit motive, we accord greater weight to objective facts than t

peration ofthe business. To be engaged in a trade or business within the meaning ofsection 162, "the taxpayer's primary purpose for engaging in the activity must be for income or profit." Commissioner v. Groetzinger, 480 U.S. 23, 35 (1987); see also sec. 183 (generally providing that ifan activity is not engaged in for profit, then no deduction attributable to that activity shall be allowed). In assessing the taxpayer's profit motive, we accord greater weight to objective facts than to subjectiv

Section 183 For-Profit Requirement 1. Introduction Section 183(a) provides: "In the case ofan activity engaged in by an individual * * *, ifsuch activity is not engaged in for profit, no deduction attributable to such activity shall be allowed under this chapter except as provided in this section." In general, section 183(b) allows deductions attri

In determining whether an activity is engaged in for profit for purposes of section 183, the taxpayer must show that he or she engaged in the activity with an actual and honest objective ofmaking a profit.

Respondent determined that petitioners' losses from their Amway activity are limited by section 183 because petitioners did not engage in the activity for profit.

ivity should be disallowed for two reasons: (1) the equine activity was not a going concern and petitioner was therefore not carrying on a trade or business, and (2) the equine activity was not an activity engaged in for profit within the meaning of section 183. We respond to each argument in turn. B. Going Concern The Internal Revenue Code generally allows deductions for ordinary and necessary expenses paid or incurred in the carrying on ofa trade or business. Sm er, sec. 162(a). On brief, resp

ec. 183(a) generally limits the amount ofexpenses that a taxpayermay deduct with respect to an activity "not engaged in for profit" to the deductions provided in sec. 183(b). In determining whether an activity is engaged in for profit for purposes ofsec. 183, the taxpayer (continued...) - 14 - [*14] not the first time that we have opined on the issue ofwhether Ms. Chow engaged in gambling activities with such an intent. We opined on Ms. Chow's gambling activities for taxable years 2004 and 2005

ing to the computer activity for lack ofsubstantiation. 1. Held: R's denial ofdeductions is sustained for P's lack of substantiation and, with respect to the memorabilia activity, because P failed to show that it was "forprofit within the meaning ofsection 183." 2. Held, further, additions to tax sustained. SERVED OCT - 8 2014 - 2 - [*2] Terry Gene Akey, pro se. AlexanderD. DeVitis, Jeffrey D. Heiderscheit, Luanne S. Di Mauro, Richard T. Cummings, Priscilla A. Parrett, and Katherine Holmes Anken

Section 183 disallows deductions for an activity not engaged in for profit, exceptto the extent it produces income. Section 183 speaks ofthe activities of "an individual or an S corporation," but we have agreed with the Commissionerthat "section 183 ofthe Code applies to the activities ofa partnership, and the provisions ofsection 183 are applied a

The issues for consideration are (1) whether petitioner engaged in a horse breeding activity with the objective ofmaking a profit within the meaning ofsection 183 and (2) vvhether petitioner is liable for accuracy-relatedpenalties under section 6662(a).

ctive Flight wasn't an activity engaged in for profit (as opposed to relying solely on the argument that certain expenses weren't ordinary and necessary)--is now seeking to negate Collective Flight's entire net loss. -21- [*21] We look to the usual section 183 factors. 1. Manner in which the activity is conducted We begin by considering whether Ed carried on Collective Flight in a businesslike manner. See sec. 1.183-2(b)(1), Income Tax Regs. A taxpayer operates in a businesslike manner when, amo

e --- --- $1,155 Supplies --- --- 1,700 Travel --- --- 3,350 Meals and entertainment --- --- 278 Total amount disallowed 3,923 43,999 6,483 Respondent also contended at trial that petitioner did not engage in Semper Fi with a profit objective under section 183. The notices ofdeficiency imposed accuracy-relatedpenalties under section 6662(a) for all ofthe years in issue. Discussion I. Burden ofProof In general, the Commissioner's determinations set forth in a notice of deficiency are presumed cor

ntinued...) - 13 - [*13] defines an "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable yearunder section 162 or under paragraph (1) or (2) ofsection 212." An activity constitutes a "trade or business" within the meaning ofsection 162--and it escapes the limitation of section 183--ifthe taxpayer's actual and honest objective is to make a profit.

We have previously considered bifurcation ofhorse breeding activities before considering whether the requisite section 183 profit objective existed.

97 2006 14,409 2,882 2007 19,175 3,835 After concessions by petitioners, the issues remaining for decision are: (1) whether petitioner husband John Kutney engaged in various consulting activities with the intent to make a profit within the meaning ofsection 183; (2) whether petitioners are entitled to various deductions claimed on Schedules C, Profit or Loss From Business (Sole Proprietorship); (3) whetherpetitioners are entitled to various deductions claimed on Schedules E, Supplemental Income

Section 183 and the regulations thereunder provide rules to determine whether an activity is engaged in for profit. An activity is engaged in for profit if - 17 - the taxpayer entertained an actual and honest profit objective in engaging in the activity. Dreicer v. Commissioner, 78 T.C. 642, 645 (1982), aff'd without opinion, 702 F.2d 1205 (D.C. C

ies for petitioner's 2006, 2007, and 2008 tax years of$1,120, $6,274, and $3,790, respectively. The sole question for our consideration is whetherpetitioner's coaching activity constituted an "activity not engaged in for profit" within the meaning ofsection 183. Background Petitioner resided in Tualatin, Oregon, at the time.his petitions were filed. During December 1986 petitioner graduated from Auburn University (Auburn) with a bachelor ofarts degree in communications/journalism and broadcastin

OPINION We are asked to decide whetherpetitioner conducted his construction activity for profit within the meaning ofsection 183 when it failed to generate a profit during any ofthe years at issue or any ofthe other 14 years he conducted the activity.

Are the Business Expenses Claimed for MacLeisure Creations Deductible? The IRS's notice of deficiency made adjustments that were premised on the theory that the activities of MacLeisure Creations were not engaged in for profit within the meaning of section 183. This theory was thoroughly vindicated at the trial. Section 1.183-2(a) of the Income Tax Regulations contains a nonexhaustive list of nine factors to consider in determining whether an activity is conducted for profit. Considering these

Though section 183 is limited on its face to "an individual or an S corporation", we have previously and repeatedly agreed with the Commissioner that "section 183 of the Code applies to the activities of a partnership, and the provisions of section 183 are applied at the partnership level and reflected in the partner's. distributive shares." Rev. Rul. 77-

80 2006 5,007 1,001.40 2007 1,250 250.00 98RVED £EP 2 0 2011 - 2 - The issues for decision are: (1) Whether petitioner engaged in his glider plane-related activities during the years in issue with the objective of making a profit within the meaning of section 183; (2) whether petitioner is entitled to deductions for unreimbursed employee expenses that he claimed for 2006; and (3) whether petitioner is liable for accuracy-related penalties under section 6662(a).

is whether petitioners' horse breeding activity constituted lan activity carried on for profit SERVED Aug 08 2011 - 2 - under section 183.1 The trial was held on March 3, 2011, in St.

After concessions,' the issues for decision are : (1) Whether petitioners' motocross racing activity was an "activity not engaged in for profit" in 2005 and 2006 within the meaning of section 183, and (2) whether petitioners are liable lit for the section 6662(a) accuracy-related penalties for 2005 and 2006 .

that .under section 183 the ResEnt undertaking is part of an activity that encompasses all of petitioners' other undertakings .

Respondent also stated that he was "eliminating * * * [petitioner's] reported gross receipts of $2,351 .00 and disallowing all of * * * [petitioner's] operating expenses of $33,475 .00 ." Respondent's determination was, in essence, a section 183 adjustment (i .e ., tantamount to'including the gross receipts as income but allowing expenses to the extent of that income) .

Section 183 and Activities Engaged in for Profi t The Court must determine whether petitioners' Nu-E World sales and marketing activities and Laurel Valley farming activities were "engaged in for profit"'within the meaning of section 183 . Section 183(a) provides that if an activity engaged in by an individual is not engaged in for profit, no deduc

aintains, however, that Edokan was not engaged in-for profit and that . petitioner's expenses are nondeductible expenses under sec . 162 . objective and that he is therefore excluded from claiming expense deductions except to the extent provided by section 183 . 6 II . Startup Expenditures While section 162 generally allows a deduction for ordinary and necessary expenses paid in connection with carrying on a trade or business, the trade or business must be functioning as a business at the time t

he is not. Background Respondent issued petitioner a notice of proposed deficienc y (30-day letter) proposing deficiencies in his income tax for 2001, 2002, and 2003 regarding whether petitioner, a psychiatrist, operated his ranch for a profit under section 183 . The notice of proposed deficiency also advised petitioner of his opportunity for review by the Appeals Office and informed petitioner that his rights in court, including, for example, the right to litigation costs, depended on his full

Individual Income Tax Return, petitioner reported losses from his greyhound activity as follows : 2001 2002 2003 Gross dog-race winnings $5,695 $3,746 $4,210 Total expenses 15,340 53,230 19,873 Net loss 9,645 49,484 15,663 By notice of deficiency respondent determined that these reported losses were not allowable under section 183 because petitioner's greyhound activity was not entered into for profit .

or reconsideration of this Court’s Memorandum Opinion in Knudsen v. Commissioner, T.C. Memo. 2007-340 (Knudsen I). In Knudsen I we held that petitioners’ exotic animal breeding activity was not an activity engaged in for profit within the meaning of section 183. Petitioners request that we reconsider whether they satisfied the requirements under section 7491(a) to shift the burden of proof to respondent. Reconsideration under Rule 161 is intended to correct substantial errors of fact or law and

Petitioners' Direct Marketing Activities Section 183 restricts taxpayers from deducting losses from an activity that is not "engaged in for profit" .

- 6 - Discussion Section 183 precludes deductions for activities not engaged in for profit except to the extent of the gross income derived from those activities .

- 6 - Discussion Section 183 precludes deductions for activities not engaged in for profit except to the extent of the gross income derived from those activities .

ractice and Procedure . All references to petitioner in the singular are to petitioner Nora Keating . The issue for decision is whether petitioner's Arabian horse-breeding activity (horse activity) constituted an activity carried on for profit under section 183 . FINDINGS OF FACT Some of the facts have been stipulated and are so found . At the time of filing the petition, petitioners resided in Williston, North Dakota . In 1996, petitioner moved to Williston, North Dakota, began work as an emerg

whether petitioners are liable for section 6662(a) accuracy-related penalties for negligence or disregard of rules or regulations with respect to the above-referenced charitable contribution deductions and/or their section 183 activities .

whether petitioners are liable for section 6662(a) accuracy-related penalties for negligence or disregard of rules or regulations with respect to the above-referenced charitable contribution deductions and/or their section 183 activities .

whether petitioners are liable for section 6662(a) accuracy-related penalties for negligence or disregard of rules or regulations with respect to the above-referenced charitable contribution deductions and/or their section 183 activities .

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 . Commi

are whether petitioner’s claim that notice and demand for payment was not sent to his last known address is barred by the doctrine of res judicata; whether the period of limitations on assessment of petitioner’s 1990 and 1991 income taxes expired; whether petitioner engaged in tournament sport fishing with the intent to make a profit as defined by section 183; and whether the lien may remain in place.

whether petitioners are liable for section 6662(a) accuracy-related penalties for negligence or disregard of rules or regulations with respect to the above-referenced charitable contribution deductions and/or their section 183 activities .

whether petitioners are liable for section 6662(a) accuracy-related penalties for negligence or disregard of rules or regulations with respect to the above-referenced charitable contribution deductions and/or their section 183 activities .

Moreover, the Court of Appeals for the Fifth Circuit, in which jurisdiction petitioner resides, has stated that taxpayers whose activities are challenged under section 183 “bear the burden of proving that their activities * * * were engaged in with the primary purpose of earning a profit.” - 6 - Westbrook v.

ctivity on their tax returns for the years at issue. Respondent disallowed the deduction of petitioner’s losses in a notice of deficiency dated February 5, 2004, determining that petitioner did not engage in the drag racing activity for profit under section 183. Petitioners timely filed a petition with this Court seeking redetermination of the disallowed deductions and asserting that petitioner entered the drag racing activity with the intent of making a profit, and that, when he was not able to

Following petitioner’s concession as to a procedural matter concerning the notice of deficiency, we are left to decide as to those years whether petitioner’s activity of breeding and showing horses (horse activity) was an “activity not engaged in for profit” under section 183.2 We hold it was.

The issues for decision are whether petitioner was engaged in an equipment leasing activity for profit under section 183,2 and whether the section 469 passive activity rules limit his depreciation deductions.

ed petitioners' losses relating to th'e jet charter activity for 1993, 1994, and 1997 in a notice of deficiency dated November 15, 2001, determining that, among other issues, petitioners did not engage in their jet charter activity for profit under section 183. Petitioners timely filed a petition with this Court seeking redetermination of the disallowed losses and asserting that they engaged in the jet charter activity with the intent of making a profit. OPINION A. Whether Petitioners Operated B

and effort they expended, the lack of occasional profits, petitioners’ financial status, and their personal motive. We hold that petitioners did not engage in the special education activity for profit during the years in issue within the meaning of section 183. B. Section 6662(a) Accuracy-Related Penalty The second issue is whether petitioners are liable for an accuracy-related penalty. Respondent determined that petitioners were liable for a penalty of $42 under section 6662(a) for 2000 based

In determining whether a - 19 - taxpayer had the requisite profit motive under section 162(a), the factors set forth in the regulations promulgated under section 183 are considered.

- 7 - of petitioner’s other income, argues that petitioner’s claim of a profit motive for his playwriting is pretextual.14 Section 183 disallows deductions for an activity not engaged in for profit, except to the extent it produces income.

and racing activities. Respondent issued a notice of deficiency to petitioner for 1996 in which respondent disallowed the deductions because petitioner did not engage in her thoroughbred horse - 7 - breeding and racing activities for a profit under section 183. Petitioner timely filed a petition with this Court seeking redetermination of the disallowed deductions. OPINION I. Whether Petitioner Operated Her Horse Racing and Breeding Activities for Profit in 1996 The sole issue for decision is whe

An “activity not engaged in for profit” is defined in section 183(c) as “any activity other than one with respect to which deductions are allowable * * * under section 162 or under paragraph (1) or (2) of section 212.” For the expenses to be deductible under sections 162 and 212, so that the limitation of section 183 will not apply, a taxpayer must engage in or carry on an activity to which the expenses relate with an actual and honest objective of making a profit.

e activity to offset income from other sources. H. Conclusion After reviewing the entire record, we conclude that petitioners did not engage in the horse breeding activity with an actual and honest objective of making a profit within the= meaning of section 183. II. Self-Employment Tax Section 1401(a) imposes a tax upon the self-employment income of every individual. Self-employment income consists of gross income an individual derives from carrying on any trade or business. Sec. 1402(a) and (b)

The regulations under section 183 provide nine nonexclusive factors to be used in determining whether a taxpayer is conducting an activity with the intent to make a profit.

This Court must decide (1) whether petitioner engaged in a bed and breakfast activity for profit within the meaning of section 183 and (2) whether petitioner is entitled to head of household filing status.

en to objective facts than to the taxpayer’s statement of his intent. Engdahl v. Commissioner, 72 T.C. 659, 666 (1979). In determining whether petitioner possessed the requisite profit motive under section 162(a), we look to the factors set forth in section 183. Osteen v. Commissioner, 62 F.3d 356, 358 (11th Cir. 1995), affg. in part and revg. in part T.C. Memo. 1993-519. The regulations promulgated under section 183, section 1.183-2(b), Income Tax Regs., set forth a nonexclusive list of factors

) Whether certain damages received by petitioners from a lawsuit are fully includable in gross income; (2) whether Southern Financial Investment Services, Inc., an S corporation wholly owned by petitioner husband, operated a trade or business within the meaning of section 162 or conducted an activity not engaged in for profit within the meaning of section 183; and (3) whether petitioners are liable for the accuracy-related penalties under section 6662(a).

Schwartz) (collectively, petitioners) related to flowthrough losses incurred by Diane Racing International’s (Diane Racing’s) yacht activity were from an activity entered into for profit for 1994, 1995, 1996, and 1997 (years in issue) within the meaning of section 183;1 and (2) whether petitioners are liable for accuracy-related penalties under section 6662.2 FINDINGS OF FACT Some of the facts have been stipulated and are so found.

162(a).7 Respondent argues that petitioners were not carrying on a trade or business because they lacked the requisite profit objective, and petitioners are not, therefore, entitled to the deductions they claim, except to the extent allowed by section 183.8 6 Petitioners explained that their refusal to cooperate with respondent’s counsel was caused by their mistaken beliefs that (1) they elected to have this case heard as a small tax case pursuant to sec.

expanded the audit to include petitioners’ 1993 and 1994 returns. During the audit of petitioners’ 1992, 1993, and 1994 returns, respondent’s examination focused on whether petitioners engaged in their horse-breeding operation for profit pursuant to section 183. Additionally, in the June 14, 1994, letter, respondent requested a meeting with petitioners in Janesville, Wisconsin, on July 12, 1994, in order to review petitioners’ records. In a reply letter dated June 21, 1994, petitioner requested

The issues for decision are: (1) Whether petitioner’s writing and handyman activities during 1997 were engaged in for profit within the meaning of section 183; and (2) whether petitioners are entitled to a deduction for self- employed health insurance expenses under section 162(l).

ubstantial losses in such activity. In no year did the activity make a profit. P deducted losses sustained in the horse activity. R disallowed these deductions on the ground that the horse activity was not engaged in for profit within the meaning of sec. 183, I.R.C. Held: P had unreported taxable income from her sole proprietorship. Held, further, based on all the facts and circumstances, the horse activity was an activity not engaged in for profit within the meaning of sec. 183, - 2 - I.R.C., a

The regulations under section 183 provide nine nonexclusive factors to be used in determining whether a taxpayer is conducting an activity with the intent to make a profit.

Baldwin III (petitioner) that purportedly owned and managed a 5,000-acre lakefront lodge property known as Granot Loma, operated a trade or business within the meaning of section 162 or conducted an activity “not engaged in for profit” within the meaning of section 183; (2) whether the duty of consistency or the doctrine of equitable estoppel applies to bar petitioner’s contention that Baldwin Aircraft Corp.

ue, and had success in other breeding activities. Furthermore, Mr. Rinehart sustained the losses in issue during the startup phase of the horse breeding activity. Accordingly, we conclude that Mr. Rinehart engaged in the horse breeding activity during 1994, 1995, and 1996 with the primary purpose and intent of making a profit within the meaning of section 183. Our holdings in this opinion will be incorporated into the decisions to be entered in these cases when all other issues are resolved.

Baldwin III (petitioner) that purportedly owned and managed a 5,000-acre lakefront lodge property known as Granot Loma, operated a trade or business within the meaning of section 162 or conducted an activity “not engaged in for profit” within the meaning of section 183; (2) whether the duty of consistency or the doctrine of equitable estoppel applies to bar petitioner’s contention that Baldwin Aircraft Corp.

t also determined for 1997 a $24,498 addition to tax under section 6651(a)(1). Following concessions, we must decide: 1. Whether petitioners’ deep-sea tournament fishing activity (fishing activity) was an “activity not engaged in for profit” under section 183. We hold it was. 2. Whether petitioners may deduct a certain bad debt. We hold they may not. 3. Whether petitioners are liable for the accuracy-related penalties and the addition to tax. We hold they are. Unless otherwise indicated, section

03,889 (80,116) 110,844 1999 5,402 88,713 (83,311) 202,559 TOTAL $94,571 $878,339 ($783,768) $1,963,955 - 5 - As a result of an audit examination, on May 6, 1998, respondent issued a notice of deficiency to petitioners in which respondent determined that, for 1994, 1995, and 1996, petitioner’s airplane activity was not engaged in for profit under section 183, and respondent disallowed the claimed losses for each of those years.

Section 183 provides that expenses incurred in conducting an activity which is “not engaged in for profit” are not deductible, except as otherwise provided in section 183(b). Section 183(c) defines an activity not engaged in for profit as “any activity other than one with respect to which deductions are allowable for the taxable year under section

The issues for decision are whether petitioners’ Amway activity was an activity engaged in for profit under section 183, and, if so, whether petitioners have substantiated the claimed deductions related to the activity.

raising an issue under section 183(a), which provides that “In the case of an activity engaged in by an individual or an S corporation, if such activity is not engaged in for profit, no deduction attributable to such activity shall be allowed” (the section 183 issue). Alternatively, respondent determined that “If the Schedule C activity is determined to be a legitimate business,” the expenses were not ordinary and necessary business expenses under section 162 (the section 162 issue). On October

The notices of FPAA state: "the allowability of interest expenses incurred is limited to the investment income of the taxpayer for the taxable year." Thus, according to the notices of FPAA, if section 183 applies, then the interest expenses of each partnership must be treated as investment interest subject to limitation under section 163(d).

a)(1) 6654 6662(a) 1991 $146,062 $15,132 $10,810 $29,212 1992 100,517 8,041 4,384 20,103 1993 405,936 38,703 4,837 81,187 1994 134,217 15,582 10,107 26,843 Following concessions,2 the issues for decision are:3 (1) Whether petitioner’s mining activity for 1991, 1992, 1993, and 1994 constituted an activity engaged in for profit within the meaning of section 183; and (2) whether petitioner is liable for the accuracy-related penalty due to negligence under section 6662(a) for each year in issue.

terminated the horse activity. H. Conclusion After reviewing the entire record, we conclude that petitioners did not engage in the horse activity with the primary, predominant, or principal purpose and intent of making a profit within the meaning of section 183. Section 6662 Penalty Section 6662 imposes a penalty on an underpayment of tax required to be shown on a return. Section 6664(c)(1) provides that no penalty shall be imposed if it is shown that there was reasonable cause for the underpaym

6662(a) 1993 $114,257 $22,851 1994 171,550 34,310 1995 189,541 37,908 The issues for our consideration are: (1) Whether petitioners’ solely owned S corporation was engaged in a farming activity for profit under section 183 for the taxable years 1993, 1994, and 1995; (2) whether petitioners are entitled to deduct various amounts claimed as contributions; and (3) whether petitioners are subject to the accuracy-related penalties under section 6662(a).1 FINDINGS OF FACT2 When they filed their petiti

The notices of FPAA state: "the allowability of interest expenses incurred is limited to the investment income of the taxpayer for the taxable year." Thus, according to the notices of FPAA, if section 183 applies, then the interest expenses of each partnership must be treated as investment interest subject to limitation under section 163(d).

Accordingly, section 183 is considered in pari materia with sections 162 and 212.

After concessions,1 the issues for decision are: (1) Whether petitioners’ ranching and farming activities constituted activities engaged in for profit under section 183, and if so, whether petitioners substantiated claimed expenses from the activities;2 (2) whether petitioners are entitled to deduct certain expenses associated with a rental property located in St.

onstitute ordinary and necessary business expenses under section 162(a). On the instant record, we further find that petitioner has failed to show that the horse-training activities constitute an activity engaged in for profit within the meaning of section 183. Based on our examination of the record in this case, we sustain, except to the extent stated below, respondent’s determi- 10Petitioner does not contend that he is entitled to inno- cent spouse relief. 11Respondent concedes on brief that $

The issue to be decided is whether petitioners’ fishing activity constituted an activity engaged in for profit pursuant to section 183 for the taxable years in issue.

2000), it is well established that the issue under section 183 as to whether a partnership investment has associated with it economic substance and a profit objective is determined at the partnership level.

- 2 - The issue for decision by the Court is whether petitioners engaged in their Amway activity for profit within the meaning of section 183.1 We hold that they did not.

The sole issue for decision is whether petitioners operated their horse breeding and boarding activity - 2 - (horse activity) for profit under section 183 in 1995 and 1996.

- 2 - After concessions made by respondent, the remaining issues for decision are: (1) Whether petitioner's consulting activity was an activity engaged in for profit within the meaning of section 183, and (2) whether petitioner has substantiated the nature and amount of various deductions he claimed on the Schedules C attached to his 1996 Federal income tax return.1 Some of the facts have been stipulated and are so found.

In a notice of deficiency dated June 3, 1998, respondent determined that petitioner was not entitled to Schedule C expenses of $16,389 for the year in issue because he (1) was not engaged in an activity for profit pursuant to section 183, and (2) failed to substantiate his claimed 1995 Schedule C deductions.

1986. 2. Held, further, P is liable for negligence additions to tax. Sec. 6662, I.R.C. 1986. Barbara Morlan DeCaro, for petitioner. Steven L. Walker, for respondent. -2- MEMORANDUM FINDINGS OF FACT AND OPINION CHABOT, Judge: Respondent determined deficiencies in Federal individual income tax and additions to tax under section 6662

still weigh against petitioners. G. Conclusion After reviewing the entire record, we conclude that Mr. Flanagin did not engage in the software development activity with - 12 - an actual and honest objective of making a profit within the meaning of section 183. II. Accuracy-Related Penalty for a Substantial Understatement Respondent determined that petitioner is liable for the accuracy-related penalty for 1992 and 1993 because there were substantial understatements of income tax on petitioners' 1

Filed November 8, 1999. Ps deducted losses sustained in their cattle- ranching and aircraft-rental operations. R disallowed these deductions on the grounds that the ranching and rental activities were not engaged in for profit within the meaning of sec. 183, I.R.C., and also assessed accuracy-related penalties under sec. 6662, I.R.C. Held: On the facts, the cattle-ranching and aircraft-rental activities were not engaged in with a profit objective, and Ps are not entitled to deduct the losses th

Revenue Code in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. The issue for decision is whether petitioners' cattle ranch activity constituted an activity entered into for profit under section 183. All references to petitioner in the singular are to James M. Goforth. FINDINGS OF FACT Some of the facts have been stipulated and are so found. At the time the petition was filed, petitioners resided in Amarillo, Texas. From the time he w

issues remaining for our consideration are: (1) Whether petitioner had unreported gross receipts for her 1986, 1990, and 1991 tax years; (2) whether petitioner’s horse breeding activity was an activity not engaged in for profit within the meaning of section 183;2 and (3) whether petitioner is liable for additions to tax under section 6651(a)(1) for the 1986, 1989, 1990, 1991, and 1992 taxable years.

espectively, and accordingly did not report any income tax liability for those years. In the notice of deficiency, respondent determined that petitioner did not engage in his meteorite and pyrite collection activity for profit within the meaning of section 183. (Alternatively, respondent determined that petitioner failed to substantiate the expenses claimed.) Respondent also recharacterized the gross income reported on petitioner's Schedules C as interest income properly reportable on Schedules

on. - 11 - OPINION I. Deficiencies A. Issue The issue we must address is whether the net farm losses claimed by petitioners on their 1992 and 1993 Federal income tax returns result from an activity not engaged in for profit, as that term is used in section 183. B. Section 183: For-Profit Requirement In pertinent part, section 183(a) provides: “In the case of an activity engaged in by an individual * * * if such activity is not engaged in for profit, no deduction attributable to such activity sha

Section 183 disallows (with certain nongermane exceptions) deductions attributable to an activity not engaged in for profit. Section 183(d) provides a rebuttable presumption that an activity will be an activity engaged in for profit if the gross income from the activity exceeds the deductions attributable to the activity for 3 or more of the taxabl

o petitioner are to Sidney Dishal. After a concession,1the issue for decision is: Whether petitioners engaged in their horse breeding and horse racing activities during the years in issue with the objective of making a profit within the meaning of section 183. We hold they did. FINDINGS OF FACT Some of the facts have been stipulated and are so found. The stipulated facts and the accompanying exhibits are incorporated herein by this reference. At the time the petition in this case was filed, peti

are: (1) Whether petitioner is entitled to exclude from gross income certain per diem payments which he received during 1993; (2) whether petitioner's horse selling and leasing activity was an activity not engaged in for profit within the meaning of section 183; (3) whether certain expenses paid by petitioner in connection with his aviation activity are deductible as ordinary and necessary business expenses; and (4) whether petitioner is entitled to Schedule A itemized deductions which exceed hi

After concessions by the parties,1 the issues for decision are: (1) Whether petitioners' apple orchard activity and dentistry activity should be treated as one activity or two separate activities for purposes of section 183, and whether petitioners' apple orchard activity was engaged in with the intent to make a profit within the meaning of section 183 during the years at issue.

ative possibility of profit was petitioners' objective for commencing their chartering activity. After reviewing all the facts and circumstances, we conclude that petitioners did not engage in the chartering activity for profit within the meaning of section 183. We, therefore, sustain respondent's determination on this issue. Charitable Contributions Under section 170(c), contributions of money to or for the use of a religious organization are generally deductible. Henson v. Commissioner, T.C. M

ny Federal withholding tax for his income from American Airlines, indicate a lack of profit objective. See Whalley v. Commissioner, T.C. Memo. 1996-533. Conclusion After reviewing the entire record, we conclude that petitioner did not engage in the horse breeding activity with an actual and honest objective of making a profit within the meaning of section 183. To reflect the foregoing, Decision will be entered under Rule 155.

Section 183 Initially we must decide whether petitioners' horse farm was an activity engaged in for profit. Section 183(a) provides that individual taxpayers will not be allowed deductions that are attributable to an "activity * * * not engaged in for profit". This terminology is defined in section 183(c) as "any activity other than one with respec

tivity for profit in 1991 and 1992. We hold that they did. 4. Whether petitioners are liable for the accuracy-related penalty for negligence under section 6662 for 1991 and 1992. We hold that they are to the extent discussed below. 1 For purposes of sec. 183, two or more "undertakings" may be one "activity". Sec. 1.183-1(d)(1), Income Tax Regs. We refer to horse and rodeo "undertakings" because one of the issues in dispute is whether they were one activity. - 3 - Section references are to the In

We must decide whether petitioners engaged in their horse activity during 1992 and 1993 with the objective of making a - 2 - profit within the meaning of section 183.1 We hold that they did not.

OPINION Section 183 limits the deductions for an activity not entered into for profit to the amount of the activity's income.

The issues for decision are: (1) Whether petitioner's resort operations constituted an activity not engaged in for profit within the meaning of section 183 and (2) whether petitioner is subject to the section 6662(a) accuracy-related penalty for 1989 and 1990.

the other determinations in a notice of deficiency issued to Mr. Surridge on the same date. We must decide: 1. Whether petitioners' Arabian horse racing, breeding, and sales activity was an activity "not engaged in for profit" within the meaning of section 183. We hold it was. 2. Whether petitioners are liable for the additions to tax determined by respondent under section 6651(a)(1). We hold they are. 3. Whether petitioners are liable for the additions to tax determined by respondent under sect

r realized from the sale of that drawing is long-term capital gain.2 (2) Did petitioner engage in his horse activity during 1989, 1990, and 1991 and his cattle activity during 1990 and 1991 with the objective of making a profit within the meaning of section 183? We hold that he did not. (3) Is petitioner liable for 1989 and 1990 for the addition to tax under section 6651(a)(1)? We hold that he is not for 1989 and that he is for 1990 to the extent stated herein. (4) Is petitioner liable for 1989,

- 3 - After concessions by the parties, the issues for decision are: (1) Whether petitioners'3 farming activity known as Bendabout Farm was an activity engaged in for profit under section 183 during the taxable years in issue.

After concessions, the issues remaining for decision are: (1) Whether petitioners' farming activity during the years in issue was an "activity not engaged in for profit" within the meaning of section 183; and (2) whether petitioners are liable for the additions to tax for negligence prescribed by section 6653(a)(1)(A) and (B) with respect to their 1987 return, and the addition to tax for negligence prescribed by section 6653(a)(1) with respect to their 1988 return.

- 3 - After concessions by the parties, the issues for decision are: (1) Whether petitioners'3 farming activity known as Bendabout Farm was an activity engaged in for profit under section 183 during the taxable years in issue.

Federal income tax as follows: Year Deficiency 1991 $7,669 1992 28,678 1993 1,924 - 2 - The principal issue presented for our consideration is whether petitioners' operation of a farm was an activity not engaged in for profit within the meaning of section 183.1 If we find the activity was not engaged in for profit, then we must decide whether legal expenses incurred by petitioners may be deducted under section 162 or 212 as ordinary and necessary expenses incurred with respect to property held

lties to those under section 6662(b)(1) as follows: Year Penalty 1992 $632 1993 848 - 3 - The issues remaining for decision are: (1) Whether respondent proved that petitioners did not engage in their Amway activity for profit within the meaning of section 183; (2) if not, whether petitioners proved they are entitled to deduct expenses in carrying out the Amway activity as ordinary and necessary expenses under section 162; and (3) whether respondent proved that petitioners are liable for the accu

eported $800 in receipts with regard to the tree farm business in the 1990 tax year. Respondent argues that the Dickersons are not entitled to the claimed deductions because the tree farm business was not engaged in for profit within the meaning of section 183. This is a factual inquiry requiring a weighing of the evidence in the record. Petitioners contend that they entered into and carried on the tree farm activity with the requisite profit objective and that, as a result, the deductions are a

- 8 - Discussion It is well established that the issue under section 183 as to whether partnerships are engaged in activity with a profit objective is determined at the partnership level.

After concessions, the following issues remain for decision: (1) Whether petitioner's photography activity constituted an activity not engaged in for profit within the meaning of section 183 during the years in issue; (2) whether petitioner is liable for the addition to tax for failure to file timely her 1990 and 1991 Federal income tax returns; and (3) whether petitioner is liable for the accuracy-related penalty provided by section 6662(a) for the years in issue.

re, unless otherwise indicated. All dollar amounts are rounded to the nearest dollar. - 3 - extent set out below. (4) Whether the farm activity conducted by petitioners was an activity engaged in for profit for the taxable years 1991 and 1992 under section 183. We hold it was not. (5) Whether petitioners are liable for penalties for negligence or intentional disregard of rules or regulations for the taxable years 1991 and 1992 under section 6662(a). We hold they are.3 FINDINGS OF FACT A few of t

OPINION Section 183 limits the deductions for an activity not engaged in for profit.

of factors used in determining whether an activity is engaged in for profit. The regulation lists nine (continued...) -13- the burden to prove that he engaged in the activity with the objective of realizing an economic profit within the meaning of section 183. Surloff v. Commissioner, supra. If a taxpayer engages in an activity without a profit objective, deductions attributable to the activity are allowed only to the extent of the income derived from the activity. Sec. 183; Hager v. Commission

28, 1984), provides that deductions disallowed for any period in the case of an activity not engaged in for profit within the meaning of section 183 are considered to be attributable to a tax-motivated transaction.

Publishing Activity Section 183 provides that if an activity engaged in by an individual is not engaged in for profit, no deduction attributable to such activity shall be allowed, except as provided in section 183(b).2 An "activity not engaged in for 2 In the case of an activity not engaged in for profit, sec.

has conceded that petitioner has substantiated the amounts in controversy. The primary issue to be decided is whether petitioner's metal mining and refining activities for 1990 constituted an activity engaged in for profit within the 13 meaning of section 183. Petitioner contends that his metal mining and refining activity was entered into with a profit objective. Respondent contends that petitioner’s metal mining and refining activity was an activity "not engaged in for profit" within the mean

28, 1984), provides that deductions disallowed for any period in the case of an activity not engaged in for profit within the meaning of section 183 are considered to be attributable to a tax-motivated transaction.

Discussion Section 183 limits the deductions for an activity not entered into for profit.

ndent determined an $18,990 deficiency for 1989 and a $14,840 deficiency for 1990. Following concessions by the parties, we must decide whether petitioners operated a cattle breeding activity with the requisite profit objective within the meaning of section 183. We hold they did not. Unless otherwise - 2 - stated, section references are to the Internal Revenue Code in effect for the years in issue. Rule references are to the Tax Court Rules of Practice and Procedure. Dollar amounts are rounded t

Even so, the real estate taxes petitioner paid on these properties could be deductible under section 164 and allowable under section 183(b)(2). Brannen v. Commissioner, 78 T.C. 471, 499-500 (1982), affd. 722 F.2d 695 (11th Cir. 1984). Section 164, however, is an itemized deduction. See sec. 63(d); sec. 62(a). Section 63 and the regulation

For purposes of section 183, the term "activity not engaged in for profit" means any activity other than one with respect to which deductions are allowable for the taxable year under section - 6 - 162 or under paragraph (1) or (2) of section 212.

BRUCE MARTIN DINSMORE, Petitioner y. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 27459-91. Filed March 30, 1994. R disallowed P's claimed Schedule C and Schedule E deductions and determined certain additions to tax. Held: For purposes of sec. 183, I.R.C., P was not engaged in an activity for profit. Held, further, P's deductions in connection with the rental of a dwelling unit are limited to the amount of gross rental income received pursuant to sec. 280A, I.R.C. Held, further, P is

concessions the issues that remain in dispute are whether (1) petitioners’ activities associated with Traders Abacus, LLC (Traders Abacus), including software development and home construction, for all years at issue were engaged in for profit under section 183, (2) petitioners’ activities associated with Leaf-Cutter, an assumed name for a purported mulching business, in tax year 2019 were engaged in for profit under section 183; and 1 Unless otherwise indicated, statutory references are to the

Swanson: (1) engaged in a fishing charter activity with the objective of making a profit within the meaning of section 183; (2) is entitled to deductions for expenses reported on the Schedules C attached to his federal income tax returns for the years in issue; (3) is entitled to deductions reported on Schedules A, Itemized Deductions, attached to his federal income tax returns for the years in issue; (4) had income in excess of the amounts reported on his

a trade or business with the intent to generate a profit during the year in issue, and therefore the deductions claimed relating to Mr. Craddock’s consulting activities should be limited to the amount of gross receipts reported on the return under section 183. Although this issue was raised during the examination, it was not incorporated into the notice of deficiency mailed to petitioners, and respondent failed to raise this issue in his Answer. On August 26, 2022, respondent filed a Status Rep

Supply, Inc., 781 F.2d at 726–27 (noting that section 183 generally is not applicable until it is determined the activity at issue is not engaged in for profit, but the factors nonetheless are relevant in conducting the profit-motive analysis under section 162).

35 On January 12, 2021, just over two months before the trial of this case was scheduled to begin in March, the Commissioner filed a Motion for Leave to File an Amendment to Answer to further allege under section 183 that Mr.

ny of petitioner’s expenses at issue are ordinary and necessary to his Schedule C business. Respondent argues that petitioner has not shown which activities were engaged in for profit or how his disjointed activities are one activity for purposes of section 183. We agree with respondent on this point. Having a business with various different components does not, in and of itself, preclude a taxpayer from arguing that they constitute one business for purposes of section 183. See Treas. Reg. § 1.1

3 at issue for travel expenses is $1,674. When Mr. Sonntag traveled, his wife did not accompany him. Mr. Sonntag traveled to Marfa and Big Bend, Texas, during the year in issue. Petitioners deducted $349 for airfare expenses. To support this expense they provided a spreadsheet Mr. Sonntag prepared of credit card transactions (credit

Losses. Ryder claimed passthrough losses from Coventry Motors, Ltd., a partnership that he created to own his collection of classic cars. These were relatively small. The Commissioner disallowed them for three reasons: ! lack of profit motive under section 183, ! lack of substantiation of his basis in the partnership, and ! absence of enough passive income to claim them under section 469. This meticulousness just earned the Commissioner a pretrial motion to dismiss for lack of jurisdiction beca

Section 162 allows a deduction for all ordinary and necessary business expenses, but section 183 bars any deduction for an “activity * * * [that] is not engaged in for profit.” Section 183 can be hugely consequential for a taxpayer.

The main issue for decision is whether petitioners’ horse activity, undertaken through Bluestone Farms, LLC (Bluestone or Bluestone Farms), was an activity not engaged in for profit within the meaning of section 183 during 2010-2013.2 We must also decide whether petitioners may carry forward to the tax years at issue net operating losses allegedly arising chiefly from their horse activity in prior years.

Losses. Ryder claimed passthrough losses from Coventry Motors, Ltd., a partnership that he created to own his collection of classic cars. These were relatively small. The Commissioner disallowed them for three reasons: ! lack of profit motive under section 183, ! lack of substantiation of his basis in the partnership, and ! absence of enough passive income to claim them under section 469. This meticulousness just earned the Commissioner a pretrial motion to dismiss for lack of jurisdiction beca

Losses. Ryder claimed passthrough losses from Coventry Motors, Ltd., a partnership that he created to own his collection of classic cars. These were relatively small. The Commissioner disallowed them for three reasons: ! lack of profit motive under section 183, ! lack of substantiation of his basis in the partnership, and ! absence of enough passive income to claim them under section 469. This meticulousness just earned the Commissioner a pretrial motion to dismiss for lack of jurisdiction beca

Losses. Ryder claimed passthrough losses from Coventry Motors, Ltd., a partnership that he created to own his collection of classic cars. These were relatively small. The Commissioner disallowed them for three reasons: ! lack of profit motive under section 183, ! lack of substantiation of his basis in the partnership, and ! absence of enough passive income to claim them under section 469. This meticulousness just earned the Commissioner a pretrial motion to dismiss for lack of jurisdiction beca

Losses. Ryder claimed passthrough losses from Coventry Motors, Ltd., a partnership that he created to own his collection of classic cars. These were relatively small. The Commissioner disallowed them for three reasons: ! lack of profit motive under section 183, ! lack of substantiation of his basis in the partnership, and ! absence of enough passive income to claim them under section 469. This meticulousness just earned the Commissioner a pretrial motion to dismiss for lack of jurisdiction beca

. Commissioner, T.C. Memo. 2012-165, slip op. at 14 (first citing Commissioner v. Groetzinger, 480 U.S. 23, 35 (1987); and then citing McManus v. Commissioner, T.C. Memo. 1987-457, © without published opinion, 865 F.2d 255 (4th Cir. 1988)); see also sec. 183 (generally providing that ifan activity is not engaged in for profit, then no deduction attributable to that activity is allowed). Focusing on the first and second factors, the taxpayer's profit motive and the taxpayer's regular and active i

nt disallowed in full for lack of substantiation.¹³ JTI's other deductions comprise the following reported expenses: ¹³ At trial respondent argued in the alternative that the ACN-related expenses on the partnership returns should be disallowed under sec. 183. This argument was not set forth in either the notice ofdeficiency or the answer. Respondent did not move to amend his pleadings or develop this argument on brief. We deem the issue to not be before us. See Thiessen v. Commissioner, 146 T.C.

The former provides that a witness who is "qualified as an expert by knowledge, skill, experience, training, or education may testify in the form ofan opinion" ifhis testimony will help the trier offact and the following conditions are met: (cid:16)04th2e testimony is based on sufficient facts or data; (cid:16)04th2e testi

The former provides that a witness who is "qualified as an expert by knowledge, skill, experience, training, or education may testify in the form ofan opinion" ifhis testimony will help the trier offact and the following conditions are met: (cid:16)04th2e testimony is based on sufficient facts or data; (cid:16)04th2e testi

The former provides that a witness who is "qualified as an expert by knowledge, skill, experience, training, or education may testify in the form ofan opinion" ifhis testimony will help the trier offact and the following conditions are met: (cid:16)04th2e testimony is based on sufficient facts or data; (cid:16)04th2e testi

After concessions,2 the issues remaining for decision are whether: (1) petitioner's cutting horse activity was an activity "not engaged in for profit" within the meaning ofsection 183, (2) petitioner substantiated expenses and net operating losses (NOL), and (3) petitioner is liable for accuracy-related penalties under section 6662(a) for the years in issue.

Weaver's Schedules C were subject to the limitation provided in section 183, which applies to activities not engaged in for profit.

1991) ("Whether the terminology used was that of 'economic substance, sham, or section 183 profit motivation' was not critical; what was important was reliance on objective factors in making the analysis."), § T.C.

Respondent has not asserted (1) under section 183 that petitioner's farming activities were not engaged in for profit or (2) that petitioner did not pay the costs listed on the invoices in the appropriate years, and the Court therefore does not consider any such issues.

1991) ("Whether the terminology used was that of 'economic substance, sham, or section 183 profit motivation' was not critical; what was important was reliance on objective factors in making the analysis."), § T.C.

¹ The Commissioner disallowed Ramirez's JCCAN losses under section 183 as losses from an activity not engaged in for profit, and the estate agreed to that adjustment before trial.

to the Tax Court Rules of (continued...) SERVED Jul 30 2018 -2- [*2] Year Deficiency Penalty 2012 $7,863 $1,492 2013 12,220 2,444 2014 7,163 1,432 After concessions,2 this case presents two questions for decision: (1) whether peti- tioner's activity as a Mary Kay consultant constituted "an activity not engaged in for profit" within the meaning ofsection 183 and (2) whether petitioner is liable for accuracy-relatedpenalties.

ed were for ordinary and necessary expenses paid during the taxable years in issue in connection with Brookes Financial's trades or businesses. Neither the notice ofdeficiency nor respondent's answer challenged Brookes Financial's art business under sec. 183 as not for profit. Respondent confirmed during the pretrial conference that petitioners' deductions were not being challenged under sec. 183 but instead were being challenged under secs. 162 and 262. The Court did not ask the parties to addr

Section 183 Under section 183(a), ifan activity is not engaged in for profit, then no deduction attributable to that activity is allowed except to the extent provided by section 183(b). In pertinent part, section 183(b) allows those deductions that would have been allowable had the activity been engaged in for profit only to the extent ofgross inco

165(d); see also Rios v.

e extent that the deficiency relates to the disallowance ofthe Schedule C deductions.3 Thus, the Court must decide whether petitioner qualifies for such reliefand, ifnot, whether the Schedule C activity was engaged in for profit within the meaning ofsection 183. ¹(...continued) Internal Revenue Code, as amended and in effect at all relevant times. All Rule references are to the Tax Court Rules ofPractice and Procedure. 2 In the notice ofdeficiency respondent also determined that petitioner recei

The sole issue for decision is whetherpetitioner's ranching activity was engaged in for profit under section 183 for the years in issue.2 FINDINGS OF FACT Some ofthe facts have been stipulated and are so found.

Commissioner¹4 had held that the Krause and Hildebrand analysis of section 183 "was wrong as a matter oflaw and Elektra/Hemisphere partners who are bound by the outcome in those cases are not subject to [section] 6621(c) penalty interest." The IRS rejected the Mangums' offer-in-compromise in October 2004 because the Court in Krause v.

In determining whether an activity is engaged in for profit for purposes of section 183, the taxpayer must show that he or she engaged in the activity with an actual and honest objective ofmaking a profit.

s paid by a taxpayer in connection with an activity not conducted by the taxpayerwith an actual and honest profit objective are not allowable under section 162 but might be allowable under some other provision ofthe Internal Revenue Code. See, e.g., sec. 183. In considering whether a taxpayer's activity constitutes a trade or business within the meaning ofsection 162(a), we examine not only the taxpayer's profit motive, but also whether the business was conducted with continuity and regularity a

Ifan activity "is not engaged in for profit," section 183 generally disallows deductions except to the extent of"the gross income derived from such activity for the taxable year." Sec.

The issues remaining for decision are: (1) whether petitioner's investiga- tion ofthe circumstances surrounding his father's death was an activity "not en- gaged in for profit" within the meaning ofsection 183; and (2) whetherthe sale of assets between related partnerships petitioner controlled was ineligible for install- ment sale treatment under section 453(g) because the transaction had a principal purpose ofavoiding Federal income tax.

The Schedule C may instead have represented an aggressive claim (given the section 183 restrictions on the deduction oflosses from activities not engaged in for profit) that Mr.

The issues remaining for decision are: (1) whether petitioner's investiga- tion ofthe circumstances surrounding his father's death was an activity "not en- gaged in for profit" within the meaning ofsection 183; and (2) whetherthe sale of assets between related partnerships petitioner controlled was ineligible for install- ment sale treatment under section 453(g) because the transaction had a principal purpose ofavoiding Federal income tax.

Section 183 Generally, the Internal Revenue Code allows deductions for ordinary and necessary expenses paid or incurred in conducting a trade or business or for the production ofincome. Secs. 162(a), 212(1). Under section 183, ifan activity is not engaged in for profit, then no deduction attributable to that activity is allowed except as provided f

The issues remaining for decision are: (1) whether petitioner's investiga- tion ofthe circumstances surrounding his father's death was an activity "not en- gaged in for profit" within the meaning ofsection 183; and (2) whetherthe sale of assets between related partnerships petitioner controlled was ineligible for install- ment sale treatment under section 453(g) because the transaction had a principal purpose ofavoiding Federal income tax.

After concessions,¹ the issues for decision are: (1) whether Linda Kaiser's (petitioner's) horse training activity was engaged in for profit within the meaning ofsection 183; and (2) whether petitioners are liable for the accuracy-relatedpenalties under section 6662(a) for the years in issue.

Section 183 For-Profit Requirement Under section 183(a), in general, taxpayers may deduct only expenses associated with activities that they engaged in for profit. Taxpayers bear the burden ofestablishing that their "endeavor was entered into or conductedwith the intention ofmaking a profit."3° Profit is defined as "economic profit, independent oft

Section 183 For-Profit Requirement Under section 183(a), in general, taxpayers may deduct only expenses associated with activities that they engaged in for profit. Taxpayers bear the burden ofestablishing that their "endeavor was entered into or conductedwith the intention ofmaking a profit."3° Profit is defined as "economic profit, independent oft

The only issues listed for trial in the pretrial memorandum are whether petitioner: (1) was engaged in an activity for profit under section 183 and (2) was liable for an accuracy-relatedpenalty under section 6662.

Section 183 Under section 183(a), ifan activity is not engaged in for profit, then no deduction attributable to that activity is allowed exceptto the extentprovided by section 183(b). In pertinentpart, section 183(b) allows those deductions that would have been allowable had the activity been engaged in for profit only to the extent ofgross income

The question presented is whetherpetitioners' SERVED NOV 1 3 2014 -2- [*2] thoroughbred activity constituted "an activity not engaged in for profit" within the meaning ofsection 183.¹ We answerthis question in petitioners' favor.

,991, and $1,991 for the years at issue, respectively. In the notice ofdeficiency, respondent allowed a deduction for $1,000 ofpropertytax for each ofthe years at issue.4 3Respondent also argues that the claimed deductions should be disallowed under sec. 183. Sec. 280A was enacted to address congressional concern that the use ofrental property by a taxpayer as a residence gave the taxpayerunwarranted opportunities to deduct personal expenses. Bolton v. Commissioner, 77 T.C. 104, 108 (1981) (citi

Thus, sections 162 and 212 allow deductions for expenses incurred in for- profit activities, and the Code includes corresponding provisions that d_iisallow deductions for expenses incurred otherwise: Section 262(a) disallows the - 18 - [*18] deduction ofpersonal, living, or family expenses, and section 183 disallows the deduction ofexpenses incurred in an "activity not engaged in for profit".

The issues for decision are: (1) whether petitioners engaged in sales and recruiting activities for profitwithin the meaning ofsection 183, (2) ifso, whether petitioners substantiated deductions they claimed for vehicle and travel expenses, and (3) whetherpetitioners are liable for an accuracy-relatedpenalty under section 6662(a).

activity losses. Petitionertimely petitioned for redetermination. Respondent's disallowance is based solely on section 469. Accordingly, we deem respondent to have conceded that petitioner operatedthe thoroughbred activity with a profit motive, see sec. 183, that the expenses for which he claimed deductions were ordinary and necessary, s_eee sec.-162, and that he maintained records adequate to substantiate the deductions. OPINION Section 469(a) disallows the passive activity loss ofan individua

e --- --- $1,155 Supplies --- --- 1,700 Travel --- --- 3,350 Meals and entertainment --- --- 278 Total amount disallowed 3,923 43,999 6,483 Respondent also contended at trial that petitioner did not engage in Semper Fi with a profit objective under section 183. The notices ofdeficiency imposed accuracy-relatedpenalties under section 6662(a) for all ofthe years in issue. Discussion I. Burden ofProof In general, the Commissioner's determinations set forth in a notice of deficiency are presumed cor

not engaged in for profit, section 183 limits deductions to the amount ofgross income from the activity.

- 44 - [*44] profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." An activity constitutes a "trade or business" within the meaning of section 162--and it escapes the limitation ofsection 183--ifthe taxpayer's actual and honest objective is to realize a profit.

Section 183(c) defines an "activity not engaged in for profit" as any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212. - 7 - [*71 Section 162 Section 162 allows a taxpayerto deduct all ordinary and necessary expenses paid or incurred

ue Code of 1986 (Code), as amended and in effect for the taxable years at issue. All Rule references are to the Tax Court Rules ofPractice and Procedure. 2On briefpetitioner criticizes respondent's use of"activity" or "horse activity". In cases with sec. 183 issues "horse activity" is a term ofart and this Court generally uses it to discuss the issues because whether activities amount to a business "engaged in for profit" is a legal conclusion for the Court to determine. Therefore we refer to pe

Section 183 For-Profit Requirement Section 183(a) provides in part that "In the case ofan activity engaged in by an individual * * * ifsuch activity is not engaged in for profit, no deduction attributable to such activity shall be allowed under this chapter except as provided in this section." Section 183(c) provides that "For purposes ofthis secti

e --- --- $1,155 Supplies --- --- 1,700 Travel --- --- 3,350 Meals and entertainment --- --- 278 Total amount disallowed 3,923 43,999 6,483 Respondent also contended at trial that petitioner did not engage in Semper Fi with a profit objective under section 183. The notices ofdeficiency imposed accuracy-relatedpenalties under section 6662(a) for all ofthe years in issue. Discussion I. Burden ofProof In general, the Commissioner's determinations set forth in a notice of deficiency are presumed cor

See id.; see also Churchman v.

ctive Flight wasn't an activity engaged in for profit (as opposed to relying solely on the argument that certain expenses weren't ordinary and necessary)--is now seeking to negate Collective Flight's entire net loss. -21- [*21] We look to the usual section 183 factors. 1. Manner in which the activity is conducted We begin by considering whether Ed carried on Collective Flight in a businesslike manner. See sec. 1.183-2(b)(1), Income Tax Regs. A taxpayer operates in a businesslike manner when, amo

Section 183 disallows deductions for an activity not engaged in for profit, exceptto the extent it produces income. Section 183 speaks ofthe activities of "an individual or an S corporation," but we have agreed with the Commissionerthat "section 183 ofthe Code applies to the activities ofa partnership, and the provisions ofsection 183 are applied a

- 44 - [*44] profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." An activity constitutes a "trade or business" within the meaning of section 162--and it escapes the limitation ofsection 183--ifthe taxpayer's actual and honest objective is to realize a profit.

Section 183 disallows deductions for an activity not engaged in for profit, exceptto the extent it produces income. Section 183 speaks ofthe activities of "an individual or an S corporation," but we have agreed with the Commissionerthat "section 183 ofthe Code applies to the activities ofa partnership, and the provisions ofsection 183 are applied a

After a concession by respondent,' the sole issue for decision is whetherpetitioner's sprint car racing activity during 2005-07 constituted an activity not engaged in for profit within the meaning ofsection 183.2 FINDINGS OF FACT Some ofthe facts have been stipulated.

Entertainmentwas not a business entered into for profit within the meaning of section 183 and petitioner in any event had failed to establish the expenses were ordinary and necessary expenses incurred in carrying on that venture.

27274-08 which was filed June 7, 2010, asserting that petitioner's activity r ported on his 2005 Schedule C was not entered into for profit and therefore under section 183 he was not entitled to deduct any losses greater than that activity's gross income.

ies for petitioner's 2006, 2007, and 2008 tax years of$1,120, $6,274, and $3,790, respectively. The sole question for our consideration is whetherpetitioner's coaching activity constituted an "activity not engaged in for profit" within the meaning ofsection 183. Background Petitioner resided in Tualatin, Oregon, at the time.his petitions were filed. During December 1986 petitioner graduated from Auburn University (Auburn) with a bachelor ofarts degree in communications/journalism and broadcastin

1999-328 (listing certain factors to consider in deciding whether a taxpayer's characterization oftwo or more undertakings as a single activity for purposes ofsection 183 is unreasonable).

Section 183 Under section 183(a), ifan activity is not engaged in for profit, then no deduction attributable to that activity is allowed except to the extent provided by "It is also ofnote that petitioners filed their Federal income tax returns in this case for tax years 2003, 2004, and 2005, on June 19 and December 7, 2006, and August 17, 2007, re

7491(a)(2) are met. Accordingly petitioners bear the burden ofproving that they are entitled to the claimed deduct ns. II. Schedule C Deductions Respondent co ends that petitioner's Schedule C activity was not an activity engaged in fo profit under section 183. In the alternative, respondent contends that petitioner's Schedule C expenses are nondeductible startup expenses. . . . Generally, section 162 allows a deduction for all ordinary and necessary expenses paid or incurred during the taxable

Ifa taxpayer establishes that he or she paid or incurred a deductible business expense but does not establish the amount ofthe expense, we may approximate the amount ofthe allowable deduction, bearing heavily against the taxpayerwhose inexactitude is ofhis or her own making. Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). In o

The issues for determination are (1) whether petitioner's activities were engaged in with a profit objective under section 183; (2) whether petitioner adequately substantiated her claimed business expense deductions; and (3) whether imposition ofthe accuracy-relatedpenalty under section 6662(a) is appropriate.

6662(a) 2004 $53,240 $10,648.00 200Ò 43,772 8,754.40 2006 41,123 8,224.60 The issues for de ision are: (1) whetherpetitioners engaged in a horse racing, training, and bree ing activity (horse activity) with the objective ofmaking a profit within the meanin ofsection 183; (2) whetherpetitioners are entitled to certain deductions pursu to section 162 with respect to petitioner's law firm; and (3) whetherpetitio ers are liable for accuracy-relatedpenalties under section 6662(a).

r, and, accordingly, - 20 - expenses incurred for the production ofSmile 'Til It Hurts are not business expenses deductible under section 162(a). Rather, he argues, they are deductible only to the extent ofthe income derived from the activity under section 183. Because there was no income, respondent seeks to deny deductions for all expenses. Petitioner bears the burden ofproving by a preponderance ofthe evidence that she was engaged in film production for profit. See Rule 142(a). The decision i

Such findings are not always "See also Gefen v.

1999-328 (listing certain factors to consider in deciding whether a taxpayer’s characterization of two or more undertakings as a single activity for purposes of section 183 is unreasonable).

- Cases using the Groetzinger standard have analyzed the taxpayer's gambling activities with regard to regulations promulgated under section 183 to identify activities not engaged in for profiti See, e.g., Chow v.

ule E the respective "Even if the premise on which Ms. Dursky advances her alternative position were validi on the record before us, we would nonetheless reject that position. If that premise were valid, on the record before us, we would find under sec. 183 and the regulations thereunder that for each of the years at issue Ms. Dursky is not entitled to deduct the amounts that DKD is claiming as deductions for each of those years with respect to DKD's cattery activity and that we have disallowed.

t because he refers to it in his opening brief," filed "In his.opening brief petitioner lists but does not address other issues such as whether the expenses were reasonable and necessary, whether the expenses are subject -to the hobby loss rules 'of sec. 183, and whether petitioner may -deduct expenses (continued...) - 14 - concurrently with respondent's, and does not assert that the argument is a new matter that either shifts the burden of proof a to respondent or.precludes our consideration of

cordingly, this factor favors respondent. After considering all of the above factors as applied to the unique facts and circumstances of this case, we conclude that Doris Racing was an activity not engaged in for profit within the - 20 - meaning of section 183. As a result, we sustain respondent's determination with respect to petitioner's Schedule C deductions. III. Section 6662(a) Penalty Section 6662(a) and (b) (1) imposes a penalty equal to 20 percent of the amount of an underpayment attribu

In the case of an'aåtlivity not engaged in for profit, section 183 generally limits allowable deductions attributable to the activity to the extent of eross income generated by the activity.

ule E the respective "Even if the premise on which Ms. Dursky advances her alternative position were validi on the record before us, we would nonetheless reject that position. If that premise were valid, on the record before us, we would find under sec. 183 and the regulations thereunder that for each of the years at issue Ms. Dursky is not entitled to deduct the amounts that DKD is claiming as deductions for each of those years with respect to DKD's cattery activity and that we have disallowed.

Though section 183 is limited on its face to “an individual or an S corporation”, we have previously and repeatedly agreed with the Commissioner that “section 183 of the Code applies to the activities of a partnership, and the provisions of section 183 are applied at the partnership level and reflected in the partner’s distributive shares.” Rev. Rul. 77-3

consulting and advisory fees claimed since * * * [petitioners] failed to .establish that such expenditures were incurred, and if incurred are deductible under any provision of the Interna l Revenue Code, including but not limited to Internal Revenue Code §§ 183 and 212 ." The parties agree that this determination is correct if the fees are affected items subject to the deficiency procedures .

Petitioner, on his 2003 Form 1040, and DPM, on its 2003 and 2004 Forms 1205, elected to group the activities of DPM and DEL for purposes of the section 469 passive activity loss limitations - 14 - and for purposes of section 183 .6 The Meiners firm prepared these grouping elections for petitioner .

Lowe's fishing activity were not deductible because the fishing activity was not engaged in for profit within the meaning of section 183 .

Consistent with other cases using the Groetzinger standard, the parties analyze petitioner's gambling activities with regard to regulations promulgated under section 183 to identify activities not engaged in for profit .

183 and that the expenses in issue were not startup expenses as defined in sec.

ay attention to the industry at all. OPINION Respondent argued that the expenses related to petitioner' s horse activity were not deductible in excess of the gross income because the horse activity was not engaged in for profit within the meaning of section 183 . Section 183(a) generally disallows deductions attributabl e to activities not engaged in for profit . Section 183(c) .defines an "activity not engaged in for profit" as "any activity other than one with respect-,to which deductions are

The Court must decide whether petitioners have engaged in their horse breeding activity with the intent of making a profit within the meaning of section 183.2 FINDINGS OF FACT Some of the facts have been stipulated and are so found.

1 .' Section 183 "Hobby" Losses Section 183, which applies to activities engaged in by individuals, generally limits, the deductions .for an "activity not engaged in for profit" to the amount c~f gross income receive d .from the activity. Sec . 183(a) and (b) . Section 183(c) defines an "activity not engaged .in for profit" as "any activity other, than

consulting and advisory fees claimed since * * * [petitioners] failed to .establish that such expenditures were incurred, and if incurred are deductible under any provision of the Interna l Revenue Code, including but not limited to Internal Revenue Code §§ 183 and 212 ." The parties agree that this determination is correct if the fees are affected items subject to the deficiency procedures .

rization of items of income, credit , gain, loss, deduction, etc ." Sec. 301.6231(a)(3)-l(b),'Proced . & Admin. Regs . Among such determinations are whether partnership activities have been engaged in with the intent to make a profit for purposes of section 183 . Id . 18 The characterization of a partnership as a sham or as lacking economic substance is a lega l determination .that directly bears on the amount and characterization of items of income, credit, gain, loss, deduction, etc . and fall

cognized that endeavors involving tax incentives should be held to a different profit-motive standard. See Rev . Rul . 79 300, 1979-2 C .B . 112 (partnerships involved in low-income housing credits not subject to normal profit-motive standard unde r section 183) . Accordingly, we conclude that the investors had a business purpose for participating . in a low-profitability venture because they expected a considerable net economic benefit from State tax savings and any Federal tax consequences wer

Respondent argued that petitioner's acting and comedy activities were not activities engaged in for profit within the meaning of section 183(a) .

. . On their .2004 tax .;?A-i return petitioners claimed not-for-profit rental expenses equal to rent moneys received . Section 183(a) disallows any; deduction attributable to ' ., activities not engaged in for profit except as provided under,,.-, section 183 (b) . Section 183(b)( 1) permits deductions which are otherwise allowable regardless . of~profit objective . Deductions that would be allowable if the activity were engaged,in for profit are permitted, but only to, the extent that gross in

To be engaged in a trade or business within the meaning of section 162(a) and section 165(c)(1), a taxpayer must conduct the activity with continuity, regularity, and for the primary purpose of deriving a profit .

on - 14 - 165(c)(1) . According to respondent, petitioner's tournament fishing activity did not qualify as a trade or business during either year in issue and expenditures incurred in connection with that activity are deductible only as allowed by section 183 . To be engaged in a trade or business within the meaning of section 162(a) and section 165(a)(2), a taxpayer must conduct the activity with continuity, regularity, and for the primary purpose of deriving a profit . Commissioner v . Groetzi

for any other case . Respondent determined a $3,172 deficiency in petitioner's 2002 Federal income tax . The issue for decision is whether during 2002 petitioner engaged in his Reliv International marketing activity for profit within the meaning of section 183 . Background The parties have stipulated many facts, which are so found . When he petitioned the Court, petitioner resided in Indiana . Petitioner is single, having divorced in 1994 . He holds a master's degree in civil engineering . In 19

Section 183 precludes deductions for activities not engaged in for profit except to the extent of the gross income derived from those activities . Sec . 183(a) and (b)(2) . Thus, deductions are not allowable for activities that a taxpayer carries on primarily for sport, as a hobby, or for recreation . Sec . 1 .18 2(a), Income Tax Regs . For a taxpa

rent to the taxpayers. In Hambleton v. Commissioner, T.C. Memo. 1982-234, we denied deductions for expenses relating to farming activities on a 110- acre tract of farmland because we found that the taxpayers lacked the requisite profit motive under section 183. We found, however: “Although * * * [the taxpayers] used approximately one acre surrounding the house for personal use, * * * [the taxpayers’] principal motivation in purchasing the 110 acre farm was to realize a profit through appreciati

nting, consulting and advisory fees claimed since you failed to estab- lish that such expenditures were incurred, and if incurred, are deductible under any provision of the Internal Revenue Code, including but not lim- ited to Internal Revenue Code §§ 183 and 212 . - 13 - 10. The partnership's primary purpose was for the creation of tax losses . The tax losses reported in the 1999 tax year are straddle transactions as defined by IRC 1092 . As such the losses are sub- ject to offsetting of the un

ce of Mr. Deward's being in the active trade or business of an author in 2001 . Respondent notes that unless petitioners show that Mr . Deward was actively engaged in the business of being an author for profit, his expenses will be disallowed under section 183 . However, respondent cites Goldman v . Commissioner, T .C . Memo . 1990-8, for the proposition that whether Mr . Deward had a profit objective is of little relevance if he did no more than prepare to begin the business of being an author

advisory fees claimed in the amount of $125,000 since you failed to establish that such expenditures were incurred, and if incurred, are deductible under any provision of the Internal Revenue Code, including but not limited to Internal Revenue Code §§ 183 and 212 . Alameda and petitioners filed separate petitions with this Court . Alameda's petition was filed at docket No . 7810-05 . On January 29, 2007, this Court entered a stipulated decision in the case at docket No . 7810-05 . Petitioners' p

On these facts, we conclude that petitioner’s ministerial activities were not engaged in for profit and that his expenses related to those activities are not deductible under section 162 or section 183 (given that petitioners had no income from these activities for 2000 or 2001).4 See Luellen v.

Section 183 generally limits the amount of deductions for an activity not entered into for profit to the amount of the activity's income . See sec . 183(b) . The notice of deficiency determined that the costs of petitioner's recording activities were startup expenses not currently deductible . The parties agree, however, that the controlling issue

accounting, consulting and advisory fees claimed since you failed to establish that such expenditures were incurred, and if incurred, are deductible under any provision of the Internal Revenue Code, including but not limited to Internal Revenue Code §§ 183 and 212. 10. The partnership’s primary purpose was for the creation of tax losses. The tax losses reported in the 1999 tax year are straddle transactions as defined by IRC 1092. As such the losses are subject to offsetting of the unrecognized

Additionally, respondent does not argue the application of section 183 and does not dispute the amounts of the expenses or that they were ordinary or necessary.

The issues for decision are: (1) Whether petitioners were engaged in an export activity during the years at issue, and, if so, whether such activity was an activity not engaged in for profit under section 183; (2) whether petitioners are entitled to deductions for expenses relating to that activity under section 162(a); and (3) whether petitioners are liable for the section 6662(a) accuracy-related penalties.2 Some of the facts were stipulated.

ficiency in petitioners' Federal income tax of $3,108 for taxable year 2001 . The sole issue for decision is whether the tournament bass fishing activity of Thomas W. Hill (petitioner) was an activity not engaged in for profit within the meaning of section 183 . 2 Some of the facts were stipulated and are so found . The stipulation of facts and the accompanying exhibits are incorporated herein by reference . At the time the petition was filed, petitioners' legal residence was Lexington, Kentucky

-0- Legal -0- 25.00 Supplies -0- 127.67 Utilities 211.48 873.16 Other expenses 57.00 60.00 Total expenses 2,413.02 8,294.53 Net loss $2,255.53 $7,295.36 In the notice of deficiency, respondent disallowed the losses resulting from the claimed deductions for the reported expenses because petitioners (1) were not operating for profit a business under section 183, or, in the alternative (2) failed to substantiate the expenses of the two activities.

Irrespective of whether petitioner’s insurance activity qualifies as a “trade or business” under section 162 or whether petitioner’s expenses are deductible under section 183, petitioner has failed to properly substantiate his claimed 6 Sec.

If petitioner fails to establish Port of Mystery’s entitlement to the deductions under section 162,6 and fails to show error in respondent’s determination that Port of Mystery was an activity not engaged in for profit, then section 183 limits 5The Internal Revenue Service Restructuring & Reform Act of 1998, Pub.

her profit participation would terminate when she had received sufficient profit distributions to fully reimburse her for all expenditures on behalf of V. R alleges that P did not participate in the activities of V for profit. Therefore, pursuant to sec. 183, I.R.C., R denies that P is entitled to deduct any of her 1999 expenditures on behalf of V. R also alleges that P is not entitled to deduct her 1999 expenditures for (1) clothing that her employer required her to wear for work or (2) tax pre

Therefore, the $126,632.00 shown on your return for 1987 and the $136,461.00 shown on your return for 1988 as deductions are not allowable under Section 183 of the Internal Revenue Code and your taxable income is increased accordingly.

Wood were in the property - 22 - management business during the years at issue, (2) that the activities were entered into for profit within the meaning of section 183, or (3) that any amount was for an ordinary and necessary business expense or was expended for the purpose designated.

According to respondent, expenditures attributable to that activity are only deductible as allowed by section 183.6 For the following 5 In general, sec.

briefs are unreliable and unhelpful. The factual assertions not based on evidence will be disregarded. - 10 - The Horse Activity Respondent determined that petitioner’s horse activity was not an activity engaged in for profit within the meaning of section 183. Under section 183(a), if an activity is not engaged in for profit, no deductions attributable to the activity shall be allowed except as provided in section 183(b). Section 183(b)(1) allows only those deductions that are not dependent upo

If an individual engages in an activity without the objective for profit, section 183 generally limits allowable deductions attributable to the activity to the extent of gross income generated by such activity.

cessions, the issues presented for decision by the parties’ motions are: (1) Whether petitioner’s expenditures related to his tree farm activities are startup expenses that are not currently deductible under section 195; and (2) if the expenses are not startup expenses, whether petitioner was engaged in an activity for profit within the meaning of section 183.2 We sustain respondent’s determination that petitioner’s “trees” expenses were startup expenses and not currently deductible.

ue, and had success in other breeding activities. Furthermore, Mr. Rinehart sustained the losses in issue during the startup phase of the horse breeding activity. Accordingly, we conclude that Mr. Rinehart engaged in the horse breeding activity during 1994, 1995, and 1996 with the primary purpose and intent of making a profit within the meaning of section 183. Our holdings in this opinion will be incorporated into the decisions to be entered in these cases when all other issues are resolved.

tivity Losses For the years 1987 through 1990, petitioner and Mr. Rowe I reported substantial losses related to a farming activity. Respondent disallowed these losses on the ground tha the activity was not engaged in for profit within the me ning of section 183. Respondent's position with respect to petitioner's claim for relief under section 6015(c) was that the activity was allocable evenly between petitioner and Mr. Rowe, and relief was not available because petitioner had actual knowledge of

ctivity Losses For the years 1987 through 1990, petitioner and Mr. Rowe reported substantial losses related to a farming activity. Respondent disallowed these losses on the ground that the activity was not engaged in for profit within the meaning of section 183. Respondent’s position with respect to petitioner’s claim for relief under section 6015(c) was that the activity was allocable evenly between petitioner and Mr. Rowe, and relief was not available because petitioner had actual knowledge of

Profit Objective Section 183 limits the deductions for an activity not engaged in for profit.

n all the pertinent facts and circumstances. Sec. 1.6664-4(b)(1), Income Tax Regs. With regard to the horse breeding activity, we previously concluded that Mr. Rinehart engaged in the activity with the intent of making a profit within the meaning of section 183. 8 Sec. 7491(c) is not applicable to these cases. See supra note 6. - 10 - Rinehart v. Commissioner, T.C. Memo. 2002-9. Respondent conceded that if the Court determined the horse breeding activity was engaged in for profit, then petitione

sses claimed on their Schedule C, Profit or Loss From Business, for Caduceus Thoroughbreds, a horse breeding and racing operation. Respondent determined that petitioners' horse activity was not an activity engaged in for profit within the meaning of section 183. Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. FINDINGS OF FACT Petitioners were residen

Petitioner also failed to establish that expenses relating to a separate trade or business of making films or composing and selling music would have been allowable under section 183 (which disallows losses from activities not engaged in for profit).

n all the pertinent facts and circumstances. Sec. 1.6664-4(b)(1), Income Tax Regs. With regard to the horse breeding activity, we previously concluded that Mr. Rinehart engaged in the activity with the intent of making a profit within the meaning of section 183. 8 Sec. 7491(c) is not applicable to these cases. See supra note 6. - 10 - Rinehart v. Commissioner, T.C. Memo. 2002-9. Respondent conceded that if the Court determined the horse breeding activity was engaged in for profit, then petitione

om Business, on the grounds that petitioner did not engage in an activity for the purpose of making a profit. An automatic adjustment was made. This Court must decide whether petitioner engaged in a tutoring activity for profit within the meaning of section 183. Some of the facts in this case have been stipulated and are so found. Petitioner resided in Los Angeles, California, at the time she filed her petition. During 1994, petitioner was employed as a teacher with the Los Angeles Unified Schoo

Respondent determined that under section 183 petitioner was not engaged in his farming activity for profit, and, therefore, disallowed the deduction.

rted that the expenses were not paid or incurred, and that the expenses were not ordinary and necessary. At trial, respondent further contended that, if petitioner is able to substantiate the expenses, part of the expenses should be disallowed under section 183. Discussion A. General The record in this case is confused, disorganized, and fraught with inconsistent assertions and theories. The truth in this case is elusive. Of concern is that petitioner operated an activity in cash, maintained no

ces of deficiency, respondent disallowed the $27,397 cattle activity loss claimed on Schedule C of the 1993 joint Federal income tax return. The basis for the disallowance was that the cattle activity was not an activity engaged in for profit under section 183. Respondent made no adjustments to the income or expense amounts reported and claimed in connection with the activity. The only other adjustments in the notices of deficiency flowed from the disallowed cattle activity loss. Petitioner file

The disallowance was made on several grounds: Petitioners had not established that the sales activity was a trade or business which was entered into for profit within the meaning of section 183 and which had economic substance other than the avoidance of taxes.

Petitioner represents clients before the Internal Revenue Service in his law and accounting practices and is familiar with section 183 and its regulations.

Individual Income Tax Return, for 1992, 1993, and 1994, petitioner reported total rental losses of $62,903, $35,456, and $82,230.1 Discussion Petitioner's Money-Lending Activity Respondent argues that petitioner was not engaged in the trade or business of lending money and alludes to section 183, Activities Not Engaged In For Profit.

t the cattle ranch was not profitable but did not know that Freeman lacked a profit motive for engaging in the activity, which was the critical fact underlying the Commissioner’s determination that Freeman was not entitled to deduct the losses under section 183. This Court held that the taxpayer was entitled to relief under section 6015(c), even though the taxpayer was aware of the activity giving rise to the erroneous deduction (the cattle ranching activity) because she did not know the predica

The regulations under section 183 provide a nonexclusive list of factors to be considered in determining whether an activity is engaged in for profit.

N THORNTON, Judge: Respondent determined deficiencies in petitioner’s Federal income taxes as follows: Year Deficiency 1993 $6,092 1994 6,883 1995 1,824 - 2 - After concessions, the issues for decision are: (1) Whether petitioner conducted his photography-related activity during 1993 and 1994 with the intent to make a profit within the meaning of section 183, and (2) whether petitioner is entitled to deduct $8,291 in unreimbursed employee expenses for taxable year 1995.

Section 183, in general, limits the amount of deductions for an activity not entered into for profit to the amount of the activity’s income. See sec. 183(b). Section 183(c) defines an activity not engaged in for profit as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under - 6

first of respondent’s alternative grounds for disallowing deductions claimed in relation to the fishing activities operated through the S corporations Billfish and Texas Terrors is the absence of the requisite profit objective within the meaning of section 183. A determination of whether the requisite profit objective exists is made on the basis of all of the surrounding facts and circumstances. See sec. 1.183-2(b), Income Tax Regs. Greater weight is given to the objective facts than to the tax

Petitioners next argue that they had no taxable income because, applying factors set forth under section 183, Raymond did not engage in the activity for profit.

t the cattle ranch was not profitable but did not know that Freeman lacked a profit motive for engaging in the activity, which was the critical fact underlying the Commissioner’s determination that Freeman was not entitled to deduct the losses under section 183. This Court held that the taxpayer was entitled to relief under section 6015(c), even though the taxpayer was aware of the activity giving rise to the erroneous deduction (the cattle ranching activity) because she did not know the predica

ces of deficiency, respondent disallowed the $27,397 cattle activity loss claimed on Schedule C of the 1993 joint Federal income tax return. The basis for the disallowance was that the cattle activity was not an activity engaged in for profit under section 183. Respondent made no adjustments to the income or expense amounts reported and claimed in connection with the activity. The only other adjustments in the notices of deficiency flowed from the disallowed cattle activity loss. Petitioner file

For purposes of section 183, an activity is not considered engaged in for profit unless it is conducted by the taxpayer with an actual and honest objective of making a profit.

Section 183(c) defines an activity not engaged in for profit as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” The test for determining whether an individual is carrying on a trade or business under section 183 is whether the taxpayer’s actual and honest objective in engaging in the activity is to make a profit.

Section 183(c) defines an activity not engaged in for profit as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” The test for determining whether an individual is carrying on a trade or business under section 183 is whether the taxpayer’s actual and honest objective in engaging in the activity is to make a profit.

- 2 - horse activity was an activity not engaged in for profit under section 183, and (2) whether petitioner is liable for the accuracy-related penalty under section 6662(a).

In the case of an activity not engaged in for profit, section 183 generally limits allowable - 7 - deductions attributable to the activity to the extent of gross income generated by the activity.

Thus, we must decide whether it was reasonable for respondent to determine that applying the section 183 factors, on balance, petitioner’s horse activity was not conducted with the requisite profit objective.

183-2(b)(5), Income Tax Regs. Mrs. Berry’s work as office manager at her husband’s clinic is not sufficiently similar to operating a farm and horse activity to indicate that she could do so successfully. This factor favors respondent. 6. Taxpayer's History of Income or Losses A history of substantial losses may indicate that the taxpayer did n

e Webster's Ninth New Collegiate Dictionary 408 (1985). 3 Petitioner reported the emu activity on a separate Schedule C of her 1993 and 1994 income tax returns. Respondent did not challenge the activity as an activity not engaged in for profit under sec. 183. - 10 - pairs of male and female) were purchased by petitioner's father for either $28,000 or $28,500. Petitioner contends that she purchased a one-fourth interest in the four emus from her father and claimed a depreciation deduction of $1,0

The only two issues for this Court to decide are: (1) Whether petitioners were not engaged in their Amway activity for profit within the meaning of section 183 and (2) whether petitioners are liable for the section 6662 accuracy- related penalties for negligence.

rch 4, 1997. A trial was held on February 11, 1998, in San Francisco, California. The sole issue at trial was whether petitioners engaged in their horse breeding and horse racing activities with the objective of making a profit within the meaning of section 183. We filed our Memorandum Findings of Fact and Opinion on November 10, 1998, holding that decision would be entered for petitioners. See Dishal v. Commissioner, T.C. Memo. 1998-397. Respondent concedes that petitioners filed a timely motio

The only two issues for this Court to decide are: (1) Whether petitioners were not engaged in their Amway activity for profit within the meaning of section 183 and (2) whether petitioners are liable for the section 6662 accuracy- related penalties for negligence.

axes for 1994, 1995, and 1996 in the amounts of $8,528, $8,671, and $8,479, respectively. The issue for decision is whether petitioner's Appaloosa horse breeding and selling activity was an activity "not engaged in for profit" within the meaning of section 183. Some of the facts have been stipulated and are so found. The stipulations of fact and attached exhibits are incorporated herein by this reference. Petitioner resided in Portland, Oregon, on the date the petition was filed in this case. Pe

s a general rule, individuals are not allowed to deduct losses attributable to an activity “not engaged in for profit”, except to the extent 2 The parties have treated all of petitioners’ horse-related activities as a single activity for purposes of sec. 183, see sec. 1.183-1(d)(1), Income Tax Regs., which we refer to as the show horse activity, consistent with petitioners’ usage on their returns. - 12 - of any gross income generated by the activity. See sec. 183(a) and (b)(2).3 Respondent asser

Dickie (petitioner) as a musician was an activity "not engaged in for profit" within the meaning of section 183 for the taxable years at issue, (2) whether petitioner is entitled to a medical expense deduction under section 213 for taxable year 1994, and (3) whether petitioners are liable for accuracy-related penalties for the taxable years at issue.

183-2(b)(5), Income Tax Regs. Petitioner successfully built Westfield Gage, but he did not show how his success with Westfield Gage relates to his ability to conduct a profitable horse racing and breeding activity. This factor favors respondent. - 18 - 6. Taxpayer's History of Income or Losses A history of substantial losses may indicate that

ures were to acquire or improve land or depreciable property. In determining whether an activity is engaged in for profit for purposes of section 174, courts have found it helpful to consider the regulations issued, and cases that have arisen, under section 183. See, e.g., Nickeson v. Commissioner, 962 F.2d 973 (10th Cir. 1992), affg. Brock v. Commissioner, T.C. Memo. 1989-641; Independent Elec. Supply, Inc. v. Commissioner, 781 F.2d 724 (9th Cir. 1986), affg. T.C. Memo. 1984-472. The section 18

was not engaged in for profit. F. Conclusion After reviewing the entire record, we conclude that Mr. Morley engaged in the horse-breeding activity with the primary - 18 - purpose and dominant hope and intent of making a profit within the meaning of section 183. II. Failure To Timely File The section 6651(a)(1) additions to tax for 1988, 1989, and 1990 were based on: (1) The deficiencies determined by respondent (the deficiency portion); and (2) amounts petitioners listed on their 1988, 1989, and

The issue for decision is whether petitioners' horse breeding and showing activities constitute an "activity not - 2 - engaged in for profit" within the meaning of section 183.1 FINDINGS OF FACT2 Petitioners were married and filed a joint Federal income tax return for the taxable year 1992.

etitioner had not established that the expenses were ordinary and necessary business expenses and that they were paid or incurred. Respondent's alternative position was that petitioner's activity was "not engaged in for profit" within the meaning of section 183. Respondent also reduced petitioner's taxable income by $8,556 for 1992 and $8,242 for 1993, because petitioner's verified itemized deductions exceeded his standard deductions as shown on his returns. Finally, respondent determined that p

ative possibility of profit was petitioners' objective for commencing their chartering activity. After reviewing all the facts and circumstances, we conclude that petitioners did not engage in the chartering activity for profit within the meaning of section 183. We, therefore, sustain respondent's determination on this issue. Charitable Contributions Under section 170(c), contributions of money to or for the use of a religious organization are generally deductible. Henson v. Commissioner, T.C. M

Section 280A(g) provides: (g) Special Rule for Certain Rental Use.-- Notwithstanding any other provision of this section or section 183, if a dwelling unit is used during the taxable year by the taxpayer as a residence and such dwelling unit is actually rented for less than 15 days during the taxable year, then-- (1) no deduction otherwise allowable under this chapter because of the rental use of such dwelling unit shall be allowed, and (2) the income derived from such

Section 183 generally limits allowable deductions to the extent of gross 7 income generated by "an activity not engaged in for profit". Sec. 183(b). An activity not engaged in for profit is one for which deductions are not allowable under section 162 or section 212(1) or (2). Sec. 183(c). Generally, when evidence shows that petitioner incurred a d

- 3 - The primary issues for decisions are: (1) Whether activities of Drake were engaged in for profit under section 183; (2) whether stated debt obligations of Drake constitute genuine debt obligations giving rise to deductible interest; and (3) whether petitioner is liable for the additions to tax.

The opinion letter claimed that the Coburn report provided a basis for concluding that Stonehurst had the requisite profit motive under section 183 to support the deduction of trade or business expenses.

Section 183 Initially we must decide whether petitioners’ dog-breeding activity was not engaged in for profit. Section 183(a) provides that individual taxpayers will not be allowed deductions which are attributable to an "activity * * * not engaged in for profit". This term of art is defined in section 183(c) as "any activity other than one with re

- 8 - Discussion It is well established that the issue under section 183 as to whether partnerships are engaged in activity with a profit objective is determined at the partnership level.

After settlement of some issues, the primary issues in these cases are: (1) Whether activities of Cromwell were engaged in for profit under section 183; (2) whether stated debt obligations of Cromwell constituted genuine debt obligations giving rise to deductible interest; and (3) whether petitioners are liable for increased interest under section 6621(c) and additions to tax under sections 6653(a)(1) and (2) and 6661.

With regard further to specific factors typically analyzed under section 183, we conclude as follows.

6662(a) Penalties 1992 $1,905 $381 1993 3,570 714 1994 2,029 406 The issues are: (1) Whether petitioners' antique glassware sales activity was engaged in for profit within the meaning of section 183, and (2) whether petitioners are liable for the accuracy-related penalties pursuant to section 6662(a).

ct the disallowance of this loss, figured as shown on the attached Exhibits #1 through #6. The notice of deficiency also determines, as an "alterna- tive position", that the loss attributable to the Cloudia is subject to the limitation set forth in section 183. The notice of deficiency states as follows: Alternatively, if the determination set forth above is not sustained for the taxable year ended December 31, 1990, see the alternative position pursuant [sic] under Section 183 of the Internal R

183; Dreicer v. Commissioner, 78 T.C. 642, 645 (1982), affd. without opinion 702 F.2d 1205 (D.C. Cir. 1983). Mr. Streck testified that petitioners initially purchased a ranch located in Kentucky as "a getaway because I was working in New York and traveling all the time and we wanted to get out in the country." The ranch was later incorporated

After concessions, the issues remaining for decision are: (1) Whether petitioners' farming activity during the years in issue was an "activity not engaged in for profit" within the meaning of section 183; and (2) whether petitioners are liable for the additions to tax for negligence prescribed by section 6653(a)(1)(A) and (B) with respect to their 1987 return, and the addition to tax for negligence prescribed by section 6653(a)(1) with respect to their 1988 return.

old memberships in their own names." Petitioners cite cases involving the distinction between a "dealer" and an "investor" in real property and argue that the factors used in those cases show that petitioner's activities "rise to the level of trade or business." Finally, they contend that the factors identified in the regulations promulgated under section 183 also show that petitioner was engaged in a trade or business.

The regulations accompanying section 183 contain a nonexhaustive list of nine factors to consider when determining whether an activity is engaged in for a profit.

Although petitioner, through her counsel, conceded that she was not - 10 - entitled to deduct expenses in excess of income, thereby conceding the section 183 issue originally involved in this case, she continued to claim expenses that either were not substantiated or clearly were personal nondeductible expenses.

edule C gross income and expenses with respect thereto for that year. 14 Respondent also contends that, because the claimed auto- mobile-related activity of TFC Engineering was not an activity engaged in for profit during 1990 and 1991, pursuant to sec. 183, petitioner is not entitled to deduct any expenses in excess of income. Petitioner does not address respondent's contention under sec. 183. On the record before us, we find that petitioner has failed to establish that the automobile-related a

Alternatively, respondent asserted, ACM's activities must be disregarded under the step transaction doctrine, ACM's activities were not engaged in for profit within the meaning of section 183, and the sale of the subject debt instruments did not satisfy the formal requirements for a contingent payment sale under section 15a.453-1(c)(1), Temporary Income Tax Regs., 46 Fed.

produced a loss of $13,217. In the statutory notice of deficiency, respondent disallowed the claimed loss on the ground that the expenses paid or incurred in connection with the racing activity were for an activity not entered into for profit under section 183. Respondent's determinations in the statutory notice of deficiency are presumed to be correct, and petitioner bears the burden of proving otherwise. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Moreover, deductions are stric

eported $800 in receipts with regard to the tree farm business in the 1990 tax year. Respondent argues that the Dickersons are not entitled to the claimed deductions because the tree farm business was not engaged in for profit within the meaning of section 183. This is a factual inquiry requiring a weighing of the evidence in the record. Petitioners contend that they entered into and carried on the tree farm activity with the requisite profit objective and that, as a result, the deductions are a

In the notice of deficiency, respondent determined that petitioner was not engaged in his golfing activity for profit within the meaning of section 183 and disallowed the loss for 1991.

r finding with respect to petitioner's profit motive also precludes allowing the disputed Schedule C deductions under sec. 212. Petitioner's failure to substantiate such deductions precludes the allowance of any which might otherwise be permitted by sec. 183. - 11 - Addition to Tax Section 6651(a)(1) imposes an addition to tax for failure to timely file a return, unless the taxpayer establishes that the failure to file is due to reasonable cause and not due to willful neglect. The addition to ta

Lamb’s tuna fishing activity was engaged in for profit within the meaning of section 183;1 and, if not, (2) whether petitioners are liable for accuracy-related penalties pursuant to section 6662(a) for negligence or substantial disregard of rules or regulations.

Where a taxpayer conducts an activity not as a trade or business, section 183 allows deductions generally to the extent the activity generates gross income.

Where a taxpayer conducts an activity not as a trade or business, section 183 allows deductions generally to the extent that the activity generates gross income.

In the notice of deficiency, respondent disallowed the horse racing activity loss, determining the horse racing activity was an activity not engaged in for profit under section 183, and that petitioner had not properly substantiated the claimed expenses.

t be a complete sham. Mahoney v. Commissioner, supra at 1219. Second, if the transaction is found to have economic substance, the question becomes whether the taxpayer was motivated by profit to participate in the transaction within the meaning of section 183. Id. If the transaction is found to be a sham, then the entire transaction is disregarded for Federal income tax purposes, and such niceties as whether the transaction was engaged in primarily for profit are simply not involved. Id. Therefo

644-646 (1982), affd. without.published opinion 702 F.2d 1205 (D.C. Cir. 1983). If a taxpayer's activity is deemed not to be engaged in for the purposes of earning ,a profit, the deductibility of expenses resulting form the activity is restricted by section 183. Particularly, section 183(b)(2) provides that expenses which result from an activity not engaged in for profit, and which would be allowable only if the activity were engaged in for profit, are deductible only to the extent of income der

.C. Memo. 1991-189; Estate of Perry v. Commissioner, 931 F.2d 1044, 1046 (5th Cir. 1991). Respondent's position in Eldridge v. Commissioner, T.C. Memo. 1995-384, was that petitioners did not engage in their cattle-raising activities for profit under section 183. In the analysis of a case under section 183, the determination of whether the requisite profit objective exists depends upon all the surrounding facts and circumstances of the case. Keanini v. Commissioner, 94 T.C. 41, 46 (1990); Engdahl

Absent an actual and honest profit objective, tax deductions relating to an investment are limited under section 183 to the income generated from the activity.

2 within the meaning of section 183, and, if so, whether petitioner can substantiate claimed business expenses; and (2) whether petitioner is liable for an accuracy-related penalty.

At the conclusion of the trial in this case, respondent stated that she no longer would rely on section 183 as a basis - 14 - for disallowing any deductions in this case.

Anderson was engaged in a trade or business related to the automobile or held the automobile for production of income or, conversely, whether the activity related to the automobile was one "not engaged in for profit" within the meaning of section 183, and (2) whether petitioner has substantiated his basis in the automobile.

For purposes of section 183, an activity is not considered engaged in for profit unless it constitutes an activity entered into or continued by the taxpayer with an actual and honest or a good faith objective of making a profit.