I have a client who has a campground and showed a loss for 5 years. I have him sign an disclosure. But I'm concerned about the understatement of tax liability penalty for tax preparer. The client has all his receipts and is trying to make a profit. What are some you guys doing in those situations
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Ask the following questions:
Does he have a written business plan?
Does he have the requisite experience to operate the business?
Does he have another job/business that takes the majority of his time?
Has he changed business operations to try and make a profit?
Are there physical assets in the business that will appreciate over time?
Does he have any employees?
Does he dedicate enough time to the business?
Does he depend on the income from the business for personal living expenses (or are they met elsewhere)
To what extent does he use the business assets for personal purposes?
Does he keep detailed business records, separate checking accounts, records of marketing related activities?
Has he had success in similar business or even other business ventures?
The answers to these questions should give you a clear picture as to whether this business is a hobby.
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