Monday, January 14, 2013

IRS Trade or Business

What is the IRS definition of a Trade or Business?

Look at differences between a profit seeking activity and a trade or business. Harder to show than something was necessary and ordinary. TRADE=BUSINESS

TEST: To be engaged in a trade or business, the taxpayer must be involved in the activity with continuity and regularity and that the taxpayer’s primary purpose for engaging in the activity must be for income or profit. A sporadic activity, hobby, or amusement diversion does not qualify.

BROAD DEFINITION: Business is a very comprehensive term and embraces everything about which a person can be employed. In deciding whether an activity is a trade or business, courts need to examine the facts on a CASE-BY-CASE BASIS, looking into whether the taxpayer devoted his full-time efforts towards the activity on a regular, continuous, and substantial basis

Allowance of a deduction constitutes something of a congressional blessing, an indication that Congress regards the expenditure in question as worthy and appropriate for the taxpayer to do. A finding of “necessity” cannot be made, however, if allowance of the deduction would frustrate sharply defined national or state policies proscribing particular types of conduct, evidence by some governmental declaration thereof.

The test of non-deductibility always is the severity and immediacy of the frustration resulting from allowance of the deduction. The flexibility of such a standard is necessary if we are to accommodate both the congressional intent to tax only net income, and the presumption against congressional intent to encourage violation of declared public policy.

POLICY: § 162 business expense deduction should not encourage taxpayers to violate the law.

20 comments:

Rob4play said...

And here I thought it was defined in section 7701a()(26) and 1401(d). How dumb of me

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