Explanation Facts related to those of Person M, the Tax Court found for the taxpayer in “ Lee Storey , 103 TCM 1631, T.C. Memo, 2012–115”. The main question before the Tax Court is to decide whether Person M’s documentary film production activity is a” hobby or a trade or business activity”. While making a decision whether this activity is for profit, the Tax Court applied the nine tests involved in “Reg. § 1.183–2(b)” to the taxpayer’s condition. The way in which the activity is carried out by the taxpayer—was the activity carried out in a professional manner. Factors in support of this test contain the business plan of the tax payer, “maintenance of accounts and total books and records, and the advertising of the completed film”. “Financial status of the taxpayer”: The Tax Court considered this test in favor of IRS. Being able to deduct Person M’s losses against Person M’s law firm income generated important tax benefits. “Expertise of the taxpayer and the taxpayer’s advisers”: Taxpayer dedicated considerable time and effort in improvising Person M’s knowledge in filmmaking. Person M carried out the activity with the aid of other competent team members. “Taxpayer’s success in carrying on similar activities”: This test is of less direct relevance, as this is the first filmmaking activity of the tax payer...

43rd Edition

ISBN: 9780357109731

Author: Hoffman

Publisher: CENGAGE LEARNING - CONSIGNMENT

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Solution Summary: The author explains how the Tax Court ruled that Person M's documentary film production activity was a hobby or trade or business activity.

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