Tax Research Paper Iii
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Tax Research Assignment – Project III
To: Jennifer Woods
From: L. Bromfield
Date: July 8th, 2012
Re: Expense deduction for AGI against winnings of prize money and sponsorship income.
Facts:
You have been employed for the last six years as a manager by Ski USA, a distributor of ski equipment and boots.
In the past two years you have participated in over 50 races annually as a professional bicycle racer and incurred annual expenses that exceeded your annual income.
You worked lighter schedule during the racing season by utilizing your vacation time and has been ranked in two events by the National Biking Association.
You have worn full-face helmet, chest protector, knee protection, elbow pads, goggles and heavy duty clothing in both events ranked by the NBA
Issues:
Whether you were correct in deducting the total expenses incurred from your bicycle racing activities as a deduction for AGI against the prize money and sponsorship income received from races.
Rule:
Section 183(a) provides generally that, if an activity is not engaged in for profit, no deduction attributable to such activity shall be allowed except as provided in section 183(b). Section 183(c) defines an "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212."
The U.S. Court of Appeals for the Ninth Circuit, to which an appeal in this case would lie, has held that for a deduction to be allowed under section 162 or section 212(1) or (2), a taxpayer must establish that he engaged in the activity with the primary, predominant, or principal purpose and intent of realizing an economic profit independent of tax savings. See Wolf v. Commissioner, 4 F.3d 709, 713 (9th Cir.1993), affg. T.C. Memo.1991-212; Indep. Elec. Supply, Inc. v. Commissioner, 781 F.2d 724, 726 (9th Cir.1986), affg. Lahr v. Commissioner, T.C. Memo.1984-472.
Analysis:
The...
To: Jennifer Woods
From: L. Bromfield
Date: July 8th, 2012
Re: Expense deduction for AGI against winnings of prize money and sponsorship income.
Facts:
You have been employed for the last six years as a manager by Ski USA, a distributor of ski equipment and boots.
In the past two years you have participated in over 50 races annually as a professional bicycle racer and incurred annual expenses that exceeded your annual income.
You worked lighter schedule during the racing season by utilizing your vacation time and has been ranked in two events by the National Biking Association.
You have worn full-face helmet, chest protector, knee protection, elbow pads, goggles and heavy duty clothing in both events ranked by the NBA
Issues:
Whether you were correct in deducting the total expenses incurred from your bicycle racing activities as a deduction for AGI against the prize money and sponsorship income received from races.
Rule:
Section 183(a) provides generally that, if an activity is not engaged in for profit, no deduction attributable to such activity shall be allowed except as provided in section 183(b). Section 183(c) defines an "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212."
The U.S. Court of Appeals for the Ninth Circuit, to which an appeal in this case would lie, has held that for a deduction to be allowed under section 162 or section 212(1) or (2), a taxpayer must establish that he engaged in the activity with the primary, predominant, or principal purpose and intent of realizing an economic profit independent of tax savings. See Wolf v. Commissioner, 4 F.3d 709, 713 (9th Cir.1993), affg. T.C. Memo.1991-212; Indep. Elec. Supply, Inc. v. Commissioner, 781 F.2d 724, 726 (9th Cir.1986), affg. Lahr v. Commissioner, T.C. Memo.1984-472.
Analysis:
The...