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BACK IN THE SADDLE
February 10, 2006
The Tax Update is back in town. I see I'm back just in time to see an Eighth Circuit Court of Appeals decision that has as good a short statement as you are likely to find of how to make sure to lose if you are ever audited on a "hobby loss" question:
The evidence in the present case established, among other things, that the Montagnes lacked a written business plan or financial projections for their horse breeding and training activities; that they maintained a single bank account for both personal and farm expenses; that they failed to generate separate business records for their horse-related activities; and that they failed to develop economic expertise or to solicit such expertise from others regarding their horse-related activities. In light of these objective facts, we cannot say that the tax court clearly erred in its finding.
In short, all the ingredients for a "hobby loss" defeat: no profit, no plan, no records, no clue, and horses. Easy win for IRS.
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