In Determining Whether an Activity Should Be Classified as a Hobby

question 30

Multiple Choice

In determining whether an activity should be classified as a hobby, the tax law provides a rebuttable presumption with regard to the profits or losses of an activity. Which of the following statements describes the profit/loss test which must be satisfied in order to meet the presumption that the activity is not a hobby?

• A)The activity shows a profit for 3 of the 5 previous years.
• B)The activity shows a loss for 3 of the 5 previous years.
• C)The activity shows a profit for 3 of the 7 previous years.
• D)The activity shows a loss for 3 of the 7 previous years.
• E)None of these

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Definitions:

Mining Partner

An individual or entity that enters into a partnership with others to engage in the exploration or extraction of minerals.

Transferable Interest

The portion of a member's ownership in an LLC or partnership that can be transferred or sold.

Partnership Account

A financial account held in the name of a partnership for the purpose of managing the partnership's funds.

Partnership

A business entity created when two or more persons collaborate to operate a business and share its profits, losses, and responsibilities.