Hobby Losses

Deductibility of Hobby Losses: Horse breeding

Wilson v. Commissioner of Internal Revenue

United States Tax Court

The following is a list of criteria the court ruling emphasized in upholding the taxpayer's deduction for horse breeding losses:

 The manner in which the taxpayer carries on the activity

The petitioners carried on the activity in a businesslike manner; they advertised, attended seminars, kept consistent records with intent to improve profitability. In additional, they abandoned an unprofitable method- in a manner consistent with intent to improve profitability (i.e., determining that the Skipper W bloodline would be more profitable).

 The expertise of the taxpayer or his advisers

Ms. Wilson had significant experience training horses and petitioners consulted with experts relating to the caring, feeding, and training of horses. In addition, petitioners regularly consulted with their accountant with respect to the activity's books and records.

 The time and effort expended by the taxpayer in carrying on the activity

Petitioners, along side their law enforcement careers, devoted considerable time to, and handled all material aspects, of the activity.

 The expectation that the assets used in the activity may appreciate in value

 The success of the taxpayer in carrying on other similar or dissimilar activities

 The taxpayer's history of income or losses with respect to the activity

The petitioners honestly and actually believed that they would recoup their losses and ultimately make a profit

 The amount of occasional profits, if any, that are earned

 The financial status of the taxpayer

The fact that the taxpayers do not have substantial income or capital from sources other than the activity may indicate that the activity is engaged in for profit. Even with the setbacks incurred that prevented the petitioners from make a profit, they actually and honestly believed that their future earnings and profit would be substantial.

 The elements of personal pleasure or recreation involved in the activity

Petitioners