"Seth" <sethb[at]panix.com> wrote
- quote -

We disagree that either the statement quoted above by itself
or the whole account as originally presented provides enough
information to come to this conclusion.

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In article <hG1rk.1999$Rs1.956[at]newsfe08.iad> ,
Elle <honda.lioness[at]gmail.com> wrote:

- quote -

"at least a little interested in making money" doesn't come close to
the requirement for having a profit motive.

Seth

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"Gil Faver" <rowdy'sboss[at]xxyz.com> wrote
- quote -

I would be studying Pub. 535, especially sections 7 and 8,
to start to answer your questions. I foresee the possibility
of amended returns.

I would emphasize again though that the client in question
(the dentist doing some writing) may be pushing it when it
comes to taking his particular trip costs as a business
expense. More information is needed to say so for sure.

I do not think a discussion with the IRS is alll that likely
with a new business claiming losses. Seems to me business
losses are pretty common, given how many folks think they
can be an entrepreneur and soon find they cannot. I imagine
the size of the loss claimed would be a factor in
determining whether the IRS raised a red flag.

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Elle wrote:

- quote -

Please recall I was responding to a CPA (proxied through his brother)
about a tax client. My response to the dentist, had he posted himself,
probably would have been different. Absent a long drawn out
interview-by-newsgroup, I probably would have suggested he consult a
professional -- which he did.

- quote -

Note I said "zero revenue" is different from, and less propitious than,
"net loss". Form 5231 "Election To Postpone Determination as To Whether
the Presumption Applies That an Activity Is Engaged in for Profit" is
one way to capture the long-term profit expectations.

- quote -

Thanx, hopefully this one was just an anomaly! ;-)

-Mark Bole

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

"Elle" <honda.lioness[at]gmail.com> wrote in message
news:Ll_qk.129$Jk1.83[at]newsfe01.iad...
- quote -

So, how would someone new to a business handle the first few years? He
could claim losses, and risk a "discussion" with the IRS. Or, he could just
eat the losses. How would eating the losses come into play a few years down
the road, when he starts to show some income? Are the losses permanently
lost? capitalized? Are they used to show a pattern of no income, so not
really a business intent? Are they used to show a pattern of struggle, so
yes, really a business intent?

And, how much weight would be given to the fact that there is sizable
investment income for such an individual? (I am likely making up a new
scenario here . . .)

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"Mark Bole" <makbo[at]pacbell.net> wrote
- quote -

My only concern is that your first response did not express
the above. ISTM that, lacking a statement such as the above,
"due diligence" has not been met.

Just exchanging impressions here; not trying to jump all
over your case. I really just wanted to know on what you
based your conclusion that there was no profit motive. It
seemed, to me, a leap rather than based on the facts as
presented. To me, the facts as presented so far suggest the
guy was at least a little interested in making money from
his article and possibly future articles.

- quote -

I believe it is a common occurence for new businesses not to
make a profit the first year. ISTM many project out a few
years or more before they expect to make a profit.

Again, not looking to stir things up. More that your post
did not make sense to me, whereas your posts usually have in
the past.

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Elle wrote:

- quote -

I didn't. *I* spat out a "no" answer, I only referenced the IRS reg in
response to your question and re-iterated "no one factor is
determinative". This type of issue clearly lends itself to dispute,
since it has been in tax court many times (unlike me).

- quote -

Sure, if we had the chance to ask questions in the course of performing
due diligence, a lot of additional information might come out that
pushes one way or the other. But we don't. That doesn't mean we can't
evaluate the facts that were presented by themselves (this seems to be
the main point we differ on).

- quote -

If he started the business in 2005, then his Schedule C for that year
should have the little check box on line H so marked. Having zero
revenue and lots of deductible expenses (which is not the same thing as
simply having a net loss) is not a good sign in the first year of business.

If this person chooses to claim the expenses, I would advise them to
file Form 5213 also.

Now, if Dick's brother the CPA, who actually has talked with the
taxpayer and presumably has asked reasonable questions, is wondering "is
there *any* way the expenses are deductible" (emphasis added), the
implication is he doesn't think so, either.

-Mark Bole

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"Mark Bole" <makbo[at]pacbell.net> wrote
- quote -

Right, Pub. 535 where it talks about hobbies v. businesses
is similar to your wiki citation blah blah and indicates it
can be gray ground. But I would not put it as though the IRS
has an algorithm that spat out a "yes" or "no" answer. I
hesitate to give the dentist such a dispositive response
because ISTM many folks do freelance yada writing not as a
main source of income, but certainly as a source of income.
Over the years, they get better at it (or not). The dentist
may be in the early stages of a business, after all. He may
be near or at the point where he does have a Sch. C
situation. It depends.

If the dentist has done nothing more since this trip and
this article to pursue writing as a business, then I would
also not advise him at present to try to write off the costs
of the trip as a Sch. C expense. My grounds would be lack of
intent to do this regularly and continuously.

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"Stuart Bronstein" <spamtrap[at]lexregia.com> wrote
- quote -

I agree. Here I do not think we have enough facts to draw
this conclusion yet.

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Elle wrote:

- quote -


There are nine factors used by the IRS to determine this, no one factor
is determinative.

http://en.wikipedia.org/wiki/Treasur...lation_1.183-2

Based on the information given, it is pretty clear to me that there is
not a profit motive when all of these nine factors are applied to this
situation. One also looks at how much time has passed without any
attempt to try different operational practices to make money.

There may be other facts and circumstances that would push the other
way, but I was going simply by what information was provided.

Another item to consider: even if there is a profit motive, start-up
costs are not necessarily fully deductible in the year incurred.

-Mark Bole

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"Elle" <honda.lioness[at]gmail.com> wrote:
- quote -

It's one of those "facts and circumstances" situations. You look at
the business, how he runs it, markets it, etc., and see if he's running
it in a way that would make sense if he were trying to make money. It
can be pretty objective, but it can also be really obvious.

Stu

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"Mark Bole" <makbo[at]pacbell.net> wrote
- quote -

How did you conclude there was no profit motive?

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Mark Bole <makbo[at]pacbell.net> wrote:
- quote -

Well, if the purpose of the trip was to visit art galleries to find
works to hang in his office, I imagine it might be deductible if he's
got a good reason, such as he markets his services primarily among
artists.

As far as the article, I can't think of anything that would convert
that trip to one for business purposes unless he can argue that his
article is parimarily for PR/marketing purposes.

Stu

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In article <g8e4f0$l3i$1[at]reader1.panix.com> ,
Dick Adams <rdadams[at]panix.com> wrote:

- quote -

Maybe, but at best it's a stretch.

If he's planning to go into a new (sideline?) business writing art
magazine articles, and this one was to get credentials in order to get
future paid business, then perhaps.

Once he gets that future paid business on the basis of this article,
he could then perhaps amend. (Though his time is running short for
2005.)

Seth

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Dick Adams wrote:

- quote -

No. There was no profit motive, so it's not a business. There wasn't
even any hobby income.

-Mark Bole

--
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Dick Adams wrote:
- quote -

How many art galleries are there in South America?
- quote -

I think there is a big question about the purpose of the trip and any
IRS auditor worth his salt would pose it. Anyway.....

Let's see now. What's that old accounting principle of
"matching"? (grin

I thought once of writing an article about Scottish railroading for just
such a purpose, i.e. selling the article to a nationally known Trains
magazine, but inquired first and found out such would not be within
their future plans, thus no money to be made.

Even if I could have had the article, with pictures, accepted for free,
I can't see any way my vacation expenses could have been deductible.

However after the first Scottish vacation back in 1991, while walking
the IRS auditor to the door, I showed her four enlarged pictures of the
Scottish highlands proudly displayed in the waiting room, and quipped to
her: "Those pictures cost me about $1,000 apiece." The trip cost was
thanks to MasterCard; the look on her face, priceless!
And no, I did NOT write off those photos on my 1040.

ChEAr$,
Harlan

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My brother who is also a CPA asked me two questions
today. One of them I sent back to him for more
detail. I will post it if he gets back to me on it.

He has a client who is a Dentist and an art connoisseur.
In 2005, the Dentist who is single took a two week trip
to South America and visited art galleries/museums every
day wehn he was not traveling. He has just had an
article on this trip accepted for publication and wants
to amend his 2005 return to deduct some of his expenses.

The problem is the periodical is not paying him for the
article. Is there any way that is expenses which are
about $4,200 are deductible.

There is no question that this trip was planned for
the purpose of writing this article.

Dick

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