HerefordSire":1nvxs0gb said:
Let me see what I can find out in 24 hours.
Triple....
In my opinion, the document behind the link at the bottom of this email should be thoroughly studied. What I have posted is not all the information used that an examiner makes a decision on. It appears to me that there is allot of judgement in making a decision like this and IRS employees usually don't have a high salary (good benefits though) if you know what I mean. Let me know if this is exactly what you are looking for. If it isn't, allow me to find the correct documentation. Good Luck!
HISTORY OF LOSSES
The examiner needs to obtain information regarding the taxpayer's history of the
activity under consideration. During the pre-examination analysis, the examiner
could gain such information from a MACS 3-year printout or from Information
Data Retrieval System (IDRS). The examiner should defer to whichever method
is most readily available and recommended in the examiner's district.
The examiner needs to review the history and determine if the activity is
generating any profits in any years at all. If the taxpayer has received any profits
on an occasional basis, the examiner should determine if the overall history of
losses exceeds the occasional profits.
IRC section 183(d) addresses the presumption that if an activity's gross income
exceeds attributable deductions for 3 or more of the taxable years in a period of 5
consecutive taxable years, then the activity is presumed to be engaged in for
profit, regardless of whether the activity is engaged in for profit. For the purpose
of this text, cattle operations fall under this presumption. Activities that pertain to
the breeding, training, or showing of horses should observe a profit in 2 or more
of the taxable years in a period of 7 consecutive taxable years.
Aside from the presumption stated in IRC section 183(d), Treasury Regulation
section 1.183-2(b)(6) addresses the taxpayer's history of losses with respect to the
activity and provides further clarification. Unforeseen or fortuitous circumstances
can impact profitability and should be considered.
Treasury Regulation section 1.183-2(b)(7) addresses the occasional profits, if any,
that are derived from the activity. The examiner should consider whether there is
any reasonable certainty that profits could occur again or if these occasional
profits are not likely to be repeated. Insignificant, occasional profits are not
indicative of an activity engaged in for profit. However, occasional substantial
profit may be indicative of an activity engaged in for profit. The examiner should
bear in mind that no one factor is determinative.
In general, a taxpayer that has the potential for falling under the provisions of IRC
section 183 will be incurring losses that tend not to diminish with each subsequent
year. While depreciation expense may cause losses in the beginning years of the
activity's operation, eventually such losses should start to level out as the annual
depreciation expense begins to decrease. In other words, the activity's losses will
continue to remain the same even though annual depreciation should start to
decrease.
The examiner may utilize master file data in order to ascertain a loss history
during the pre-examination analysis. Copies of prior year's returns will need to be
secured for the case file. Such copies can be obtained from the taxpayer or the
taxpayer's representative. Original tax returns may become necessary should a
case go forward to the United States Tax Court. At that point, the examiner
should defer to Counsel.
(this section is continued)
WARNING...pdf download
http://www.irs.gov/pub/irs-mssp/a1farmls.pdf