"TaxSrv" wrote in message
...
"C J Campbell" wrote:
The IRS wants to see a profit in three out of five years.

This is no longer true. The IRS lost a series of court cases on this
one,
most notably because huge corporations such as Amazon.com, airlines,
and
investment real estate would have been treated as hobby losses.
Going after
only small businesses was unconstitutional under the equal
protection
clause. Now the IRS uses other tests to determine if an entity is a
business.


I've been in tax practice for 40 yrs now. Sorry, but all of the above
is a complete fabrication.

I should expand a little on my explanation. IRC 183 says that any activity
that makes a profit 3 out of 5 years is presumed to be a for profit venture.
However, this rule does not determine whether the activity is for profit; it
basically is a safe haven which says that if you do this you are presumed to
be in business for a profit. This is different than years ago when it was
pretty much presumed that if you did not make a profit 3 out of 5 years then
you were not engaged in a profit-making venture.

If the activity does not make a profit 3 out of 5 years, then the IRS uses
other rules to determine whether you are engaged in a business for profit.

I am not sure what you are claiming is a fabrication. Are you saying that
Amazon.com and real estate tax shelters would not fail the 3 out of 5 test?
Are you suggesting that the rules for taxpayers are different on the basis
of size of the business? Are you telling me that the IRS wins in court using
the 3 out of 5 test as the sole basis for determining whether the business
is for profit? Because if you are saying these things, then what you are
saying is a complete fabrication.

It is pretty easy to dismiss a complex issue by saying it is "a complete
fabrication" without backing it up with any evidence and while using an
anonymous handle. I seriously question whether you have been in tax practice
for any time at all, let alone 40 years, or you would know better than to
make such sweeping generalizations. Unless you are an IRS auditor, of
course.

Bottom line is that if you can establish a profit motive for your business,
then the 3 out of 5 year rule (or 2 out of 7 in some cases) does not apply.