A Practical Look at the Hobby Loss Rule

Determining Factors in Recent Court Cases

M. Siddiqui Saad, CPA

British media personality David Frost once said, “Don't aim for success if you want it; just do what you love and believe in, and it will come naturally.” This might seem like sage advice, but there are times when taxpayers need to be wary of the implications of pursuing what they love as a business. The “hobby loss rule,” which is typically invoked when the IRS believes that a particular activity is more of a hobby than a legitimate business, disallows the deduction of an activity's expenses if it is not conducted for profit. A recent court case concerning documentary filmmakers, Storey v. Comm'r(TCM 2012-115), provides an excellent window into the courts' interpretation of the hobby loss rule and the nine factors used to determine whether an activity is conducted for profit or business.