Opportunities Exist to Identify and Examine Individual Taxpayers Who Deduct Potential Hobby Losses to Offset Other Income

The Director, Examination, Small Business/Self-Employed (SB/SE) Division, should make use of its research capabilities to identify high-income individual returns with multiyear Schedule C losses and other factors that indicate the taxpayer may not have a profit or capital gain motive for the activity.

The Director, Examination, Small Business/Self-Employed (SB/SE) Division, should emphasize the importance of required filing checks in the preliminary determination of whether to pursue an Internal Revenue Code (I.R.C.) section 183 issue and provide tools to assist examiners in documenting their conclusion.