- quote -

The way you're describing this, it sounds as though the
thing became an activity-not-for-profit on a date in the
past. Any subsequent loseses would then not be allowable
(except as to statutory items). To be a business, it has to
be run like a business. If the local track is closed, and
chances of future profits are judged nil, it doesn't matter
if she feels the normal manner in which business assets
should be disposed so as to minimize further losses is
unacceptable to her, due to her love of animals. The latter
sentiment is an item of evidence which IRS uses to attack
the losses. The fact that there's no nearby source of
income, nor a plan to transport them long distances to race
and be profitable against substantially increased costs,
don't help neither. If preparing these, I wouldn't claim
them under the facts as stated.

Fred F.

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- quote -

Thanks for all the advice everyone. I've heard that this is
the rule, but since she hasn't filed since 1993 (and there
was a loss that year--not sure about prior years), how would
the 2/7 be handled? Especially since they are only
requesting that she file returns for 1997 and on?

Also, she keeps saying that since the track in town closed
down that they will get some sort of exception to the rules
(she claims other horse friends have done this). I'd think
not because you have to at least prove you are trying to
turn a profit, right? It's not like she has some business
plan in place to try and earn some money since the track
closed.

I just hope that if the horse business items are not allowed
that she doesn't owe any tax on the regular income items and
the rentals.

Thanks again for any comments.

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kimberlykrogers wrote:

- quote -

All she needs is 2 profit years out of the past 7 to defeat
the possibility of it being a "hobby loss" (i.e. it is
presumed to be a for profit activity).

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Have you considered divorce? <g
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kimberlykrogers wrote:

- quote -

(snipped here and there.)
- quote -

One question comes to mind. What are her gross revenues
from the "horse business" since 1996? (1997 included)

If no income, then definitely no business.

Cheer$,
Harlan Lunsford, EA n LA

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This is more a question for Dr. Laura. But you won't be
able to do a decent job for your parents and it may well
ruin your marriage. Send them to another pro.

As to the continuing losses, we had a client with excellant
records and years of losses - and the last several years
were disallowed. The IRS said several years should have
convinced them that it was not possible to make a profit.

Nan, EA in LA.

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Is my mother-in-law nuts to think these losses will be
allowed? Situation is as follows:

She's been in the "horse racing" business for many years.
The last several years she hasn't done much racing since the
local track closed, she and her husband are getting older,
etc, etc. However, they still have 50 horses that they take
care of on a daily business. She just loves animals and
likes having the horses around, even though they are eating
up the husband's pension/social security, etc. She can't
find homes for the horses (she doesn't want them killed) and
the expenses just keep adding up (not to mention the husband
spends all his time on them). Bottom line--I doubt she's
made any profit the last few years at all.

In addition, she, believe it or not, has not filed her taxes
since 1993! I am not kidding--she claims she is overwhelmed
(she's never been good with paperwork/records), husband was
sick, they live a crazy lifestyle, etc. The IRS has finally
caught up with her, saying she must file from 1997 on. I
guess they are passing on 1994-1996?

Anyway, I don't know what happened before 1993 (she was
having me help her try and organize some papers), but in
1993 the "horse business" had like $60K in expenses and only
$10K or so of income, resulting in $50K of losses taken
against ordinary income.

I know there are rules about business losses (esp. in fields
like horses), but she claims she'll be able to bypass the
profitibility rules because she's heard others have gotten
waivers since the track closed. I've tried to tell her that
she needs to keep better records, to have a profitibility
plan, etc.

Even worse, when I (I just recently took the CPA exam)
agreed to "help" her do her taxes, I thought I'd be sorting
through ledgers, etc and could provide some overall order to
get those past-due tax returns started, so she wouldn't have
to pay her tax attorney so much money. Wrong--there's
nothing but slips and slips of papers/bills/cancelled
checks, I couldn't tell what is what. Most of the stuff is
duplicate bills that were sent a second time since they
weren't paid. Business expenses aren't separated from
personal, it's just a huge mess. I couldn't even tell how
much horse income was made that year. I ended up having to
mail back everything for 1997 (the first year she must
submit) and she got another extension. I told her to call
around and get rental info (she has a few rental houses)
like taxes paid, mortgage interest, but she hasn't even done
that yet.

My main concern is that she is going to end up having the
entire horse business disallowed and that she is going to
owe a huge tax bill and hit up my hard-working husband for
the money. (They definitely aren't poor, but the horse
lifestyle sucks up every penny.) Also, I still have some of
her 1998-2002 papers here and I am truthfully too busy to
weed through this and waste another 10 hours of time when
really it's information only she understands or can make
sense of. Am I a jerk for being honest and sending the
stuff back? I mean this is really a clerical job of sorting
papers into categories and letting her figure out what is
going on. I'm working a tax season job with a long commute
and I really just don't think I can help that much.

Any thoughts/ideas/comments would be appreciated. Thanks!

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