Question

Is raising show horses considered a not for profit activity under Section 183 if no profits were made and there was a loss? No other information given besides that the person hopes to make a profit in the future.

Answer 1

NO, IT IS NOT A NOT FOR PROFIT ACTIVITY, IT IS SIMPLE BUSINESS ACTIVITY SINCE THE PERSON AIMS TO ACHIEVE PROFIT THROUGH THIS ACTIVITY IN THE FUTURE. LOSSES AND PROFITS ARE JUST PART OF BUSINESS.

IT WOULD HAVE CONSIDERED NOT FOR PROFIT ACTIVITY IF IT HAD FULFILL FOLLOWING REQUIREMENTS-

Whether or not an activity is presumed to be operated for profit requires an analysis of the facts and circumstances of each case. Deciding whether a taxpayer operates an activity with an actual and honest profit motive typically involves applying the nine non-exclusive factors contained in Treas. Reg. § 1.183-2(b).

Those factors are:

1. how the taxpayer carried on the activity,

2. the expertise of the taxpayer or their advisers,

3. the time and effort expended by the taxpayer in carrying on the activity,

4. the expectation that the assets used in the activity may appreciate,

5. the success of the taxpayer in carrying on other similar or dissimilar activities,

6. the taxpayer’s history of income or loss concerning the activity,

7. the number of occasional profits, if any, which are earned,

8. the financial status of the taxpayer, and

9. elements of personal pleasure or recreation.

No single factor controls; other factors may be considered. The fact that the number of factors indicating the lack of a profit objective exceeds the number indicating the presence of a profit objective (or vice versa) is not conclusive. For example, if five factors say the activity is not for profit, but four are on the profit side, the activity still could be determined to be engaged in for profit. The courts give more weight to objective facts than to the taxpayer’s statement of their intent