form 5213 Election to postpone determination...engaged in for profit

[bgiez]

Has anyone had experience with form 5213 "Election to Postpone Determination as To Whether the Presumption Applies That an Activity Is Engaged in for Profit"?

I have a client who started a business in 2010 when he was down sized and unable to find a new job. He had some income from that in 2010 and 2011, but no profit. In 2012 he had many expenses but no income. He is looking at changing the focus of the business from the current focus to what was a secondary/minor focus and reworking his business plan.

If I understand the instructions for this form (a big if), he has until April 15, 2014, to file it, and filing it would give him an extra two years to meet the profit criteria.

Thanks.

[Bees Knees]

In my opinion, those forms are nothing more than [“hey IRS, please audit me because I am doing something that needs closer attention”] forms. Similar to filing forms that disclose suspicious positions taken on a tax return.

Sorry, that was not your question. No I have no experience filing the thing.

[New York Enrolled Agent]

In my opinion, those forms are nothing more than [“hey IRS, please audit me because I am doing something that needs closer attention”] forms. Similar to filing forms that disclose suspicious positions taken on a tax return.

Bees

It would be an overstatement to say I use FORM 8275 on a routine basis but I have never had any IRS inquiries on the ones I have submitted over the years.

Bgiez

"... and filing it would give him an extra two years to meet the profit criteria."

Be careful with this form - the statute for assessment is extended for two years on the 5 years in question.

[Bees Knees]

Bees

It would be an overstatement to say I use FORM 8275 on a routine basis but I have never had any IRS inquiries on the ones I have submitted over the years.

I know I know…my remark has no basis in reality. It was an end of tax season I’m exhaustion remark.

However…………..having said that…..

Form 5213 is asking IRS to postpone an IRS determination as to whether the activity is a hobby or a business. The taxpayer isn’t under IRS audit. Therefore, the IRS ALREADY has not yet made a determination as to whether the activity is a hobby or a business.

In my opinion, you are either a business or a hobby. If you are a business, you can lose money for many years without showing a profit. Argue the facts if and when IRS challenges your business losses. Why tip them off to the fact that you are not sure you are a business? Losing money for 5 years in a row during a business start up should NOT be the criteria of deciding whether you are a business or a hobby. That decision should be decided ahead of time with a valid effort made to be profitable as soon as possible if you are in fact trying to run a business.

[Snaggletooth]

Motive is Key

From the original post it appears taxpayer lost his job and dabbled around with a couple of unsuccessful business ventures that
didn't make it.

Unless this guy is trying to claim something with ridiculous odds of making a profit, I would be inclined to take the losses
and shut up about any extra forms that invite the IRS to look at his return.

[bgiez]

Thanks NYEA, Snags, Bees

You pretty much confirmed my feeling about form 5213. I'll let the client make the decision, although I'm still not sure exactly what the additional two years does.

I am so ready for this to be over.