Chapter 8: Other Deductions, Penalties, and Loss Disallowance

01.Core Concepts

• If activity shows profit in 3 out of 5 years (2 out of 7 years for horses), presumption is that taxpayer has profit motive. • Rebuttable presumption • Shifts burden of proof to IRS to show that the taxpayer did not have a profit motive. • Otherwise, taxpayer has burden to prove profit motive.