Losses Prove It’s a Business

[Mr. Pencil]

DISCLAIMER. I made this up. It is not true. Maybe it could be true. Maybe it should be true. But it isn't. I made it up.

Losses Prove It’s a Business

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 would not appeal because the odds of winning were low.

[kcjenkins]

Cute, Jainen.

[ILLMAS]

This reminds me of the man who betted his attorney he would pee on the IRS agent papers.

87 year old Grandpa is summoned to the IRS office for an audit.

The IRS auditor was not surprised when Grandpa showed up with his tax adviser.

The auditor said, ‘Well, sir, you have an extravagant lifestyle and no full time employment, which you explain by saying that you win money gambling. I’m not sure that I find that believable.’ I’m a great gambler, and I can prove it,’ says Grandpa. ‘How about a demonstration?’ The auditor thinks for a moment and said, ‘Okay. Go ahead.’ Grandpa says, ‘I’ll bet you a thousand dollars that I can bite my own eye.’ The auditor thinks a moment and says, ‘It’s a bet.’ Grandpa removes his glass eye and bites it. The auditor’s jaw drops.

Grandpa says, ‘Now, I’ll bet you two thousand dolars that I can bite my other eye.’ Now the auditor can tell Grandpa isn’t blind, so he takes the bet. Grandpa removes his dentures and bites his good eye. The stunned auditor now realizes he has wagered and lost three grand, with Grandpa’s tax adviser as a witness. He starts to get nervous.

‘Want to go double or nothing?’ Grandpa asks ‘I’ll bet you six thousand dollars that I can stand on one side of your desk, and pee into that wastebasket on the other side, and never get a drop anywhere in between.’ The auditor, twice burned, is cautious now, but he looks carefully and decides there’s no way this old guy could possibly manage that stunt, so he agrees again after checking a couple of details about the bet. Grandpa stands beside the desk and unzips his trousers, but although he strains mightily, he can’t make the stream reach the wastebasket on the other side, so he pretty much urinates all over the auditor’s desk. The auditor leaps with joy, realizing that he has just turned a major loss into a huge win.

But Grandpa’s tax adviser moans and puts his head in his hands. ‘Are you okay?’ the auditor asks. ‘Not really,’ says the tax adviser. ‘This morning, when Grandpa told me he’d been summoned for an audit, he bet me twenty five thousand dollars that he could come in here and pee all over your desk and that you’d be happy about it!’

[BulldogTom]

Actually, there is a tax case of a professional bowler who won in Tax Court by closing her business. Don't know the name, but the lady traveled all over the south living in hotels and entering tournaments. She went to different tours and locations for about 7 years. Never made a profit and had huge sch C losses. The IRS audits and disallows as a hobby. Tax court disagreed. The books were immaculent, and the taxpayer had a business plan. The 2 major deciding factors for the court was that the taxpayer tried several different methods to earn a profit, and that when they didn't work, SHE CLOSED THE BUSINESS.