Fill and Sign the Hobby Vs Business and Losses for Tax Purposes Form

10.4 Tax Refund Suits Business Loss vs. Hobby Loss The controversy in this case concerns the deductibility of expenses involved in the operation of , which was owned by the Plaintiff. The Plaintiff contends that was being operated as a business for profit and that [he] [she] was therefore entitled to deduct on the Plaintiff's income tax returns for the years in issue the losses sustained in the operation of that business. The Government contends that was not really a true business venture but was operated as a hobby for the personal pleasure, enjoyment and prestige of the Plaintiff and the Plaintiff's family; that the Plaintiff did not have a true profit motive in operating the; and that, as a consequence, the Plaintiff is not entitled to deduct from the Plaintiff’s other income the losses that resulted from operating. The Government has the burden of proof on this issue and must persuade you, by a preponderance of the evidence, of the correctness of its position. The Internal Revenue Code allows a taxpayer to deduct all of the ordinary and necessary expenses paid or incurred during a taxable year in carrying on a trade or business. Moreover, if a loss is sustained during a particular year, that loss may be deducted from income derived from other sources, such as the Plaintiff has done here. The key words in this case are the words "trade or business." If expenses or losses occur in a trade or business, they are deductible. On the other hand, expenses or losses are not deductible if a person is engaged in an activity simply for pleasure as a hobby or for recreation or social prestige. It is only when the activity is entered into with the bona fide expectation of making a profit that it may be considered as a trade or business. In order to constitute a business, the activity usually must be carried on regularly and continuously, over a period of time. Generally, the person engaged in such activity must be regularly engaged in selling goods or services, and regularly devoting time and attention to such activity. However, it need not be the taxpayer's only or even a principal occupation. It may be a sideline, so long as it occupies the time, attention and labor of the person for the purpose of profit, not as a mere recreation or hobby. In this regard you may consider the Plaintiff's regular occupation and the amount of income derived from that occupation. You may also compare the character of the Plaintiff's regular occupation with the size and character of the activity in questionin this case and the time expended on each. The fact that the Plaintiff's activities were conducted in the face of serious losses, standing alone, does not necessarily mean that those activities were for the Plaintiff's personal pleasure, provided the Plaintiff had a profit motive. Similarly, if the taxpayer sincerely and in good faith hopes and expects to make a profit, that is sufficient despite the fact that others may believe that there is no reasonable expectation of such profit. In determining whether the Plaintiff intended to engage in the activity for profit, no one factor is controlling. The considerations I have mentioned are designed solely to guide you and assist you in evaluating and weighing the evidence presented. [You must determine separately for each of the years involved whether the activity here in question was a bona fide trade or business for profit. It may be a business one year and not the next, or vice versa. However, the fact that the activity was or was not a business in a year prior or subsequent to the years in question is a relevant fact.]VERDICT [A general [verdict form will usually suffice] ANNOTATIONS AND COMMENTS See the Annotations and Comments following Federal Claims Instruction 10.1, supra.