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IRS FOCUSING ON HOBBY LOSS DEDUCTIONS

8/1/2016

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Recently, The Treasury Inspector General For Tax Administration (TIGTA) reviewed methods used by the IRS to identify businesses that may not be operating for  profit, and recommended steps be taken to maximize the use of all relevant and available taxpayer information to better identify hobby losses. This is expected to  pose a significant issue for some horse businesses. 

The below is quoted from Highlights of Reference Number: 2016-30-031 to the Internal Revenue Service Commissioner for the Small Business/Self-Employed  Division.

The Treasury Inspector General For Tax Administration (TIGTA)'s review of a statistically valid sample of 100 returns determined that 88 percent showed an  indication that Schedule C businesses were not engaged in for profit. TIGTA estimates that 7,511 returns in the total sample population of taxpayers may have  inappropriately used hobby loss expenses to reduce taxes by as much as $70.9 million for Tax Year 2013.

TIGTA recommended that the IRS: 1) make use of SB/SE Division 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 and 2) emphasize the importance of required filing checks  in the preliminary determination of whether to pursue a hobby loss issue and provide tools to assist examiners in documenting their conclusion.  In response to  the report, IRS management agreed with the recommendations and plans to take corrective actions.

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READ THE FULL REPORT
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Photo Copyright: vikarus / 123RF Stock Photo
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    B. Paul Husband, avid horseman, author, tax attorney and legal representative for the entertainment industry.

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