26 U.S.C. § 183 : US Code - Section 183: Activities not engaged in for profit

Search 26 U.S.C. § 183 : US Code - Section 183: Activities not engaged in for profit

(a) General rule
In the case of an activity engaged in by an individual or an S
corporation, if such activity is not engaged in for profit, no
deduction attributable to such activity shall be allowed under this
chapter except as provided in this section.
(b) Deductions allowable
In the case of an activity not engaged in for profit to which
subsection (a) applies, there shall be allowed -
(1) the deductions which would be allowable under this chapter
for the taxable year without regard to whether or not such
activity is engaged in for profit, and
(2) a deduction equal to the amount of the deductions which
would be allowable under this chapter for the taxable year only
if such activity were engaged in for profit, but only to the
extent that the gross income derived from such activity for the
taxable year exceeds the deductions allowable by reason of
paragraph (1).
(c) Activity not engaged in for profit defined
For purposes of this section, the term "activity not engaged in
for profit" means any activity other than one with respect to which
deductions are allowable for the taxable year under section 162 or
under paragraph (1) or (2) of section 212.
(d) Presumption
If the gross income derived from an activity for 3 or more of the
taxable years in the period of 5 consecutive taxable years which
ends with the taxable year exceeds the deductions attributable to
such activity (determined without regard to whether or not such
activity is engaged in for profit), then, unless the Secretary
establishes to the contrary, such activity shall be presumed for
purposes of this chapter for such taxable year to be an activity
engaged in for profit. In the case of an activity which consists in
major part of the breeding, training, showing, or racing of horses,
the preceding sentence shall be applied by substituting "2" for "3"
and "7" for "5".
(e) Special rule
(1) In general
A determination as to whether the presumption provided by
subsection (d) applies with respect to any activity shall, if the
taxpayer so elects, not be made before the close of the fourth
taxable year (sixth taxable year, in the case of an activity
described in the last sentence of such subsection) following the
taxable year in which the taxpayer first engages in the activity.
For purposes of the preceding sentence, a taxpayer shall be
treated as not having engaged in an activity during any taxable
year beginning before January 1, 1970.
(2) Initial period
If the taxpayer makes an election under paragraph (1), the
presumption provided by subsection (d) shall apply to each
taxable year in the 5-taxable year (or 7-taxable year) period
beginning with the taxable year in which the taxpayer first
engages in the activity, if the gross income derived from the
activity for 3 (or 2 if applicable) or more of the taxable years
in such period exceeds the deductions attributable to the
activity (determined without regard to whether or not the
activity is engaged in for profit).
(3) Election
An election under paragraph (1) shall be made at such time and
manner, and subject to such terms and conditions, as the
Secretary may prescribe.
(4) Time for assessing deficiency attributable to activity
If a taxpayer makes an election under paragraph (1) with
respect to an activity, the statutory period for the assessment
of any deficiency attributable to such activity shall not expire
before the expiration of 2 years after the date prescribed by law
(determined without extensions) for filing the return of tax
under chapter 1 for the last taxable year in the period of 5
taxable years (or 7 taxable years) to which the election relates.
Such deficiency may be assessed notwithstanding the provisions of
any law or rule of law which would otherwise prevent such an
assessment.