Avoiding Hobby Loss Classification: Meeting the Nine Factor Test, the 183(d) Safe Harbor, and Withstanding IRS Challenges

Recording of a 110-minute CPE webinar with Q&A


Conducted on Thursday, January 21, 2021

Recorded event now available

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Program Materials

This webinar will discuss positioning businesses to satisfy the nine-factor criteria under Reg Sec 1.183-2(b) to avoid classification as a hobby. Our panel will discuss how the courts have historically interpreted and weighed these factors so tax professionals can identify potential hobby loss exposure and challenge a hobby loss classification if audited.

Description

More businesses are reporting losses in the current economy. Businesses anticipating losses should take steps to ensure their losses will be allowed and not considered "activities not engaged in for profit" under IRC Section 183. Courts have established winners, losers, and precedents that help define when activities are conducted in a business-like manner (factor #1) and qualify as business activities.

There is a statutory safe harbor, Section 183(d), that presumes a profit motive if the activity is profitable for three of five years (two of seven for certain activities involving horses). However, meeting the safe harbor does not eliminate a hobby loss challenge, it simply shifts the burden of proof to the IRS. Tax advisers need to understand the criteria the IRS uses to assess whether an undertaking is an activity engaged in for a profit so that losses from struggling businesses are allowed.

Listen as our panel of tax experts discusses the latest hobby loss developments, including recent court cases and positioning business activities to survive IRS challenges to loss deductions.

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Outline

  1. Hobby losses: an overview
  2. The nine factors
  3. Meeting the safe harbor
  4. IRS hobby loss audits and appeals
  5. Proactive planning for losses
  6. Recent and landmark cases

Benefits

The panel will review these and other key issues:

  • Preventing a business from being classified as a hobby
  • Demonstrating a profit motive
  • Completing, and when to complete, Form 5213 to postpone safe harbor determination
  • Meeting the nine factors outlined in Regulation Section 1.183-2(b)
  • Lessons learned from recent hobby loss cases

Faculty

Edmondson, S. Gray
S. Gray Edmondson

Partner
Edmondson Sage Allen

Mr. Edmondson practices in partnership, corporate, and individual tax planning; business transactions, including...  |  Read More

Mitchell, Kreig
Kreig D. Mitchell, LLM, JD

Attorney/Managing Director
Kreig Mitchell

Mr. Mitchell focuses on various state and federal tax matters and related business and probate matters, including tax...  |  Read More

Reilly, Peter
Peter J. Reilly, CPA

Consultant

Mr. Reilly began working in public accounting in 1979 with Joseph B Cohan & Associates, a large local firm based in...  |  Read More

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