Discussion:Business or Hobby????
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| 8 November 2007 | |
| My Client is a Professional Bass Fisherman he is currently ranked in
the top 25 in the state.Client has not showed a profit in 5yrs. He has excellent records of Income from tournament winnings and sponsor money and gifts.However he continues to spend more than he makes.Fishing gear,Entry fees,meals and lodging etc.... Irs audits his 2005 return.Examiner said his records were excellent but they are considering this a hobby and not a business and disallowing his losses for 2005 & 2006.Is this worth appealing or should he just be happy they aren't going back to 2001 when it started.I did all I could to prove this was a ligit Business.But she didn't want to hear it.Received examiners report today and she only has balance due for 2005????? any advice on this?? So far he owes abt 2k for 05 | |
Donniecastleman (talk|edits) said: | 8 November 2007 |
| In My Opinion, take the deal and run with it and just knock down his losses to zero as a hobby for now, maybe you can do something about keeping major "business" property purchased as personal assets and then you could always introduce them into the business if it really takes off one day with a fishing show, endorsements, etc. I think that if you don't take the deal that you could easily end up owing 10K over all the years, so take the deal and knock winnings down to zero every year. Just my opinion of course. I'm glad SOMEONE has better fishing luck than I do, I had 2 bites total in 4 hours at Lake Mead outside of Vegas last week but I'm going back to do battle again another day! | |
Death&Taxes (talk|edits) said: | 8 November 2007 |
| You might look at http://www.ustaxcourt.gov/InOpHistoric/H2ill.SUM.WPD.pdf, a recent Tax Court Bass Fisherman case
We also had a discussion last month on this exact topic; perhaps it is heresy not to find the link myself and provide it, but if you type 'Bass Fishing" into the search block you might find it. Maybe if you said Top 25 in the US, or he had appeared on one of those wildlife shows that pop up on ESPN2 on Saturday mornings, or on a wild things channel that is part of some packages, you might have something. It does not sound like he activities rose to a level where any other years but 2004-06 are open. I think I would accept the disallowance. If you do appeal, one fair warning. Several times I have met with an Appeals officer on issues where profit motive/hobby was the issue. Twice the Appeal officer has claimed to participate in the same activity and says he knows everything about it, and it can't be more than a hobby. I had this happen with small airplane rentals and with something else age has taken from my memory. | |
| 8 November 2007 | |
| About ten years ago a client of mine was audited on his "business" of racing cars. I remember one of the cases we relied on was a motorcycle racer. In that case, the racer argued that if he had won every race he entered, he would have generated a profit. The Tax Court held that although he did not have a reasonable chance of turning a profit, that he did have a chance of turning a profit, and they ruled in his favor. You might take that angle, and find that case or similar case law to support your stance.
And Donniecastleman: A day on Lake Mead without catching any fish is still a great day. I hung out there one day killing some time before my flight - what a beautiful part of the world. | |
| 8 November 2007 | |
| There was another hobby rules court case a few years ago dealing with someone who lost money as a professional deep sea fishing tournament competitor. While the taxpayer established that it was indeed possible to make good profits on the tournament circuit, he lost the case. The IRS hung a good deal of its case on the fact much of the expenses for travel, lodging, meals etc. were lavish and extravagent. They offered that as proof that the taxpayer was not trying to control costs, and the court agreed. You might want to see if those kind of expenses for your client are modest as opposed to extravagent, and perhaps you can build an arguement from there. | |
| November 8, 2007 | |
| Bts, you could win, but is it worth it? I have a Bass fisherman, too, has dodged audit fortunately, but I'm pretty conservative in the write offs. At one point, many years ago, we took a Suburban that was ONLY used for hauling the boat. Seriously. No way I'd do that now. I also had a gal with significant other income get into pro snowmobiling, we actualy set up a corp, she was getting sponsors and earning some prizes. On audit, the guy says she's having too much fun! For us, it was moot, she totalled her brand new four door Ford F-250 due to drunk driving, which cost her license, and she was out of biz. I considered appealing it, but in the end it just wasn't enough money to get excited about. | |
| November 8, 2007 | |
| But having too much fun is NOT the end all decision like they make it sound. | |
| 8 November 2007 | |
| BTS I have a question, Does the Taxpayer have another job or business and if so what line of work? | |
| 8 November 2007 | |
| I would be curious to know where the auditor would have wanted to see profits reported had there been any? Would this have been on Sch C subject to SE tax or would it have been on line 21 (not subject to SE tax). | |
