The "3 year rule" simply shifts the burden of proof from
them to YOU. "Proof" means your ability to show that you
intended to make a profit even though you didn't manage it.

There are cases showing taxpayers who lost money for 10 or
more years but really tried hard to make a profit - and won
their Tax Court cases. Not that it is easy, but it is
possible.

Nan, EA in LA

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"Ian" <iandecker[at]charter.net> wrote:

- quote -

Will a Schedule C with expenses and no income raise a red
flag? Yes. Should you make a business decision solely on
that basis? I don't think so. If you have good
documentation & can clearly demonstrate a profit motive,
hang in there. If, however, your CD fails to generate the
necessary interest & income, you may wish to reconsider the
wisdom of this pursuit. Continuation as a hobby, with the
attendant rules, may be more appropriate.

Don Rosenberg, EA

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For the past 2 years I have filed my small business
(musician)with expenses being more than income. ($4500
income, $8000 expenses first year and $1200 income and $2400
expenses the 2nd year) This is my third year, and I decided
early on to record a CD to promote and earn more income, but
I haven't earned any income this year since I am recording,
and don't see any income for the rest of the year since it
will take the rest of this year to record. I have expenses,
but no income. Since it is 3rd year of filing, can I file
my loss with no income this year as long as I show income,
break even, profit next year....Or since I have no income
with expenses, am I done. Do I have to consider this a
failed business?

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