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Renee Harding

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Submitted By spspence
Words 763
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Date: Oct. 13, 2015
Treatment of Loss

Dear Renee:
The purpose of this letter is to discuss the treatment of the $25,406 loss. This loss is classified as a hobby loss under IRC code section (183)(a). Given the circumstances, you have not displayed enough profit-motive to classify your activities as business activities. The facts relevant to this case are that you: had an art degree; bought five terriers for breeding purposes; had particular interest in breeding for profit; spent lots of time with friends while attending dog-show social events; converted part of the home office into a ten-kennel pen; purchased an advertisement in Dog World for services of a breeder; signed onto the breeder network; retained detailed records of the Terriers which includes: stud fees, care costs, and receipts of the sold puppies. The assumptions used are that you: already had friends that were dog breeders; have no expertise in breeding or had not hired outside council with expertise in dog breeding; have not made any profits from breeding; have no past experience with dog breeding; did not have separate business checking accounts; did not have a business plan; did not purchase or obtain insurance, certifications, or liscenses. The implications of having a hobby loss is that you can not offset other income. Unlike business losses, hobby losses do not carryforward or backward. The deductions for hobby activities are claimed as itemized deductions on Schedule A, Form 1040.
The decision to claim a hobby loss rather than business loss was difficult. However, there seemed to be a lack of profit-motive in your dog breeding activities. IRC section (183)(a)(¶m -5824) offered a similar example of the Third Cicuit’s decision in Simon, where the tax court ruled in favor of Hobby-Loss status for someone who participated in horse breeding activities and fully expected to make a profit but

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