Section 183: Case Study

307 Words1 Page

Section 183(d) allows a deduction to a taxpayer who engages in for business. The taxpayer must earn a profit for any three years or more. If he does not meet the profit test, his activity is hobby. The gross income should be greater than the deduction in order to qualify for tax deduction under section 183(b)(1).
Section 262(a) clarifies that personal and family expenses are not deductible. This includes spending on education except that it relates to trade or business. Reg. section 1.262-1(a)(b)(9)

A taxpayer had desires for her step daughter (Jennifer) to be a successful ballerina. Jennifer trained at the Virginia School of the art in Lynchburg with the help of Aspiring Artists. Taxpayer paid expenses through talent agency; however, this agency was not eligible for business profit. Christopher J. Bush, et ux., TC Memo 2002-33 …show more content…

She does not also pass the income requirement to section 183(b)(1) for she did not receive any income during her training. As for the second consideration, the cost of training is family expense in section 183(b)(1). Disney is a tax exempt organization in which people go for personal or recreational purposes. Although Britney went to Disney for education, her expense part of personal or family expense under reg. section 1.262-1(a)(b)(9). Therefore, Britney would not meet the requirement to deduct her cost under section 183(b)(1)

Britney case is similar to Jennifer because both their parents put them on the training as they had personal desires for their daughter to be a good artist. Unlike Britney, Jennifer got her training at the school, which is for profit, but her expense paid through a nonprofit agency. Like Britney, Jennifer cost of training is for personal or family

More about Section 183: Case Study

Open Document