Activities Not Engaged In for Profit

How the Courts Interpret IRC Section 183

Richard H. Fern, DBA, CPA

Taxpayer deductions for business and income-producing activities are granted through IRC sections 162 and 212. Section 162 allows deductions for ordinary and necessary expenses incurred in carrying on a trade or business. Section 212 allows individual taxpayers to deduct ordinary and necessary expenses related to the “production or collection of income” or the “management, conservation or maintenance of property held for the production of income” (sections 212[1] and [2]). Because IRC sections 162 and 212 expenses are deductible in arriving at a taxpayer's adjusted gross income (AGI), per section 62, taxpayers are often tempted to try to fit many nonbusiness activities under their income-producing umbrellas.