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#12. When the IRS challenged one taxpayer’s consulting business, he decided to use his business skills to fight back. John Bethesda developed classes to teach card counting, probability theory, and other mathematical approaches to gambling. Because of high travel costs his expenses exceeded income for several years. The IRS characterized it as a hobby under the presumption that losing money for three years shifts the burden of proof to the taxpayer.
Bethesda cited Small Business Administration and Treasury Department statistics that show that 85% of all new businesses fail within three to five years. He argued that his losses proved that he is in the majority of activities defined as a business. The probability of his failure is a normal and expected business pattern.
The tax court agreed after the IRS was unable to present any additional evidence. IRS attorneys said they probably would not appeal because the odds of winning were low.
#12. When the IRS challenged one taxpayer’s consulting business, he decided to use his business skills to fight back. John Bethesda developed classes to teach card counting, probability theory, and other mathematical approaches to gambling. Because of high travel costs his expenses exceeded income for several years. The IRS characterized it as a hobby under the presumption that losing money for three years shifts the burden of proof to the taxpayer.
Bethesda cited Small Business Administration and Treasury Department statistics that show that 85% of all new businesses fail within three to five years. He argued that his losses proved that he is in the majority of activities defined as a business. The probability of his failure is a normal and expected business pattern.
The tax court agreed after the IRS was unable to present any additional evidence. IRS attorneys said they probably would not appeal because the odds of winning were low.
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