Question

Jefferson is a grade school teacher whose annual income from teaching is $30,000. He has always enjoyed bowling, and his local pro urged him to turn professional. He subsequently begins working for the pro as an unpaid assistant and enters an apprenticeship program with the Professional Bowlers’ Association of America (PBA). As an apprentice, he accumulates credits toward becoming a member of the PBA by taking approved classes, working as an assistant pro, and competing in pro tournaments. Jefferson expects to be approved as a full member of the PBA next year.

Although Jefferson continues to teach full-time, he goes to the bowling alley each day after school and practices after fulfilling his duties as an unpaid assistant. During the summer, he spends 12 to 15 hours each day at the bowling alley. In addition, he participates in as many PBA tournaments as he can work into his schedule.

Jefferson has come to you for advice on the deductibility of the expenses he has incurred in his bowling career. Since deciding to turn pro, he has won money in tournaments every year. However, his expenses have exceeded his earnings by $5,000 to $10,000 per year. What can be deducted?

Answer 1

Facts

The case facts involve Jefferson, a Grade school teacher who usually earned $30,000 annual income from his teaching Job. However, he had wanted always to play to bowling. He then entered into an apprenticeship program with the Professional Bowlers Association of America (PBA) as unpaid assistant. Through the program, he would be able to accumulate credits toward becoming a member of PBA through taking acceptable classes and competing in pro tournaments. Even though Jefferson continues with his fulltime teaching job, he still goes to work as an unpaid assistant at the bowling alley. After deciding to become a pro, Jefferson earned some money, but his expenses exceeded his earnings by $5,000 to $10,000 per year. Thus, Jefferson reported losses from such activity.

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Issue

The main issue is whether the notice of deficiency disallowing Jefferson’s losses from the activity is valid and whether Jefferson should adhere to it. IRS considered various aspects relating to the approach of reporting income by Jefferson.

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Conclusions

In summary, it is recommendable for Jefferson to adhere to the notice of deficiency disallowing the losses from the activity. This is because money earned from the pro Bowling games qualified as for profit activities. Mostly, his personal expenses are not deductible as he also worked as a teacher. Since, the aspect of profit motive proves that Jefferson was engaged in a for profit activity. Therefore, Jefferson should take note of the notice of deficiency disallowing the losses from the activity.

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Analysis/Discussion

Section 183(a) explains that if an individual is engaged in an event not engaged in for profit, no deductions are allowable for the expenses incurred during the activity. If Jefferson pro games were not engaged in for profit within the explanations of section 183(a), then none of the expenses would be deductible, even considering the stipulations of section 183(b)(1) and(2). Section 183(b) (2) explains that deductions would be allowable when the activity engaged in a for profit activities to a degree whereby the gross earnings from the activity exceeded the deduction from the allowable expenses. Jefferson did not earn any gross income from money earned from pro Bowling games. Thus, there were no deductions are allowed. This implies that Jefferson did not have any tax capacity and legality to enjoy deduction of the expenses incurred personally. Therefore, Jefferson must report the money earned from the pro Bowling games.

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Really hope this helps! Thankyou!

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