Please read Ethics & Equity When is a Dairy Farm a Trade or Business . Is the position by Randolph defensible? Review the 9 factors of Sec.183 considered to help determine whether an operation should be considered a business or hobby. You may also want to do some outside internet research on the subject, include in your own words and cite your sources.
– Write a detailed memo to Randolph in Word with your research findings to properly advise him on this matter. Your memo will likely be more than one page. (Note: This memo must equal or exceed 600 words).
To receive full credit your memo should:
– Address each of the 9 factors and indicate to Randolph whether each factor is supportive or not supportive of his farming operation being considered a business.
-Based on your analysis of these factors, make an overall conclusion to Randolph regarding deductibility.
Submissions that address all the items indicated above in a formal memo will receive full credit. Submissions that do not
a.) individually address each of the 9 factors as supportive of a business or hobby and b). make an overall conclusion regarding the deductibility of Randolf’s farm operation will receive half credit. (Note: This memo must equal or exceed 600 words).
General Rules If an individual can show that an activity has been conducted with the intent to earn a profit, losses from the activity are fully deductible. The hobby loss rules apply only if the activity is not engaged in for profit. Hobby expenses are deductible only to the extent of hobby income.
The Regulations stipulate that the following nine factors should be considered in determining whether an activity is profit-seeking or is a hobby
1. Whether the activity is conducted in a businesslike manner.
2. The expertise of the taxpayers or their advisers.
3. The time and effort expended.
4. The expectation that the assets of the activity will appreciate in value.
5. The taxpayer’s previous success in conducting similar activities.
6. The history of income or losses from the activity.
7. The relationship of profits earned to losses incurred.
8. The financial status of the taxpayer (e.g., if the taxpayer does not have substantial amounts of other income, this may indicate that the activity is engaged in for profit).
9. Elements of personal pleasure or recreation in the activity.
The presence or absence of a factor is not by itself determinative of whether the activity is profit-seeking or is a hobby. Rather, the decision is a subjective one that is based on an analysis of the facts and circumstances.