In the case of an activity engaged in by an individual or an S corporation, if such activity is not engaged in for profit, no deduction attributable to such activity shall be allowed under this chapter except as provided in this section.
In the case of an activity not engaged in for profit to which subsection (a) applies, there shall be allowed-
For purposes of this section, the term "activity not engaged in for profit" means any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.
If the gross income derived from an activity for 3 or more of the taxable years in the period of 5 consecutive taxable years which ends with the taxable year exceeds the deductions attributable to such activity (determined without regard to whether or not such activity is engaged in for profit), then, unless the Secretary establishes to the contrary, such activity shall be presumed for purposes of this chapter for such taxable year to be an activity engaged in for profit. In the case of an activity which consists in major part of the breeding, training, showing, or racing of horses, the preceding sentence shall be applied by substituting "2" for "3" and "7" for "5".
A determination as to whether the presumption provided by subsection (d) applies with respect to any activity shall, if the taxpayer so elects, not be made before the close of the fourth taxable year (sixth taxable year, in the case of an activity described in the last sentence of such subsection) following the taxable year in which the taxpayer first engages in the activity.
If the taxpayer makes an election under paragraph (1), the presumption provided by subsection (d) shall apply to each taxable year in the 5-taxable year (or 7-taxable year) period beginning with the taxable year in which the taxpayer first engages in the activity, if the gross income derived from the activity for 3 (or 2 if applicable) or more of the taxable years in such period exceeds the deductions attributable to the activity (determined without regard to whether or not the activity is engaged in for profit).
An election under paragraph (1) shall be made at such time and manner, and subject to such terms and conditions, as the Secretary may prescribe.
If a taxpayer makes an election under paragraph (1) with respect to an activity, the statutory period for the assessment of any deficiency attributable to such activity shall not expire before the expiration of 2 years after the date prescribed by law (determined without extensions) for filing the return of tax under chapter 1 for the last taxable year in the period of 5 taxable years (or 7 taxable years) to which the election relates. Such deficiency may be assessed notwithstanding the provisions of any law or rule of law which would otherwise prevent such an assessment.
26 U.S.C. § 183
AMENDMENTS2014-Subsec. (e)(1). Pub. L. 113-295 struck out "For purposes of the preceding sentence, a taxpayer shall be treated as not having engaged in an activity during any taxable year beginning before January 1, 1970." at end.1988-Subsec. (e)(2). Pub. L. 100-647 substituted "activity for 3 (or 2 if applicable)" for "activity for 2".1986-Subsec. (d). Pub. L. 99-514 substituted "3" for "2" before "or more" in first sentence and " '2' for '3' and '7' for '5' " for "the period of 7 consecutive taxable years for the period of 5 consecutive taxable years" in second sentence. 1982-Subsec. (a). Pub. L. 97-354 substituted "an S corporation" for "an electing small business corporation (as defined in section 1371(b))".1976-Subsecs. (d), (e)(3). Pub. L. 94-455, §1906(b)(13)(A), struck out "or his delegate" after "Secretary".Subsec. (e)(4). Pub. L. 94-455, §214(a), added par. (4).1971-Subsec. (e). Pub. L. 92-178 added subsec. (e).
STATUTORY NOTES AND RELATED SUBSIDIARIES
EFFECTIVE DATE OF 2014 AMENDMENT Amendment by Pub. L. 113-295 effective Dec. 19, 2014, subject to a savings provision, see section 221(b) of Pub. L. 113-295 set out as a note under sectionof this title.
EFFECTIVE DATE OF 1988 AMENDMENTAmendment by Pub. L. 100-647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment relates, see section 1019(a) of Pub. L. 100-647 set out as a note under sectionof this title.
EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99-514 applicable to taxable years beginning after Dec. 31, 1986, see section 151(a) of Pub. L. 99-514 set out as a note under sectionof this title.
EFFECTIVE DATE OF 1982 AMENDMENTAmendment by Pub. L. 97-354 applicable to taxable years beginning after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354 set out as an Effective Date note under sectionof this title.
EFFECTIVE DATE OF 1976 AMENDMENT Pub. L. 94-455, title II, §214(c), Oct. 4, 1976, 90 Stat. 1549, provided that: "The amendments made by this section [amending this section and section taxable year ending before the date of the enactment of this Act [Oct. 4, 1976] with respect to which the period for assessing a deficiency has expired before such date of enactment."of this title] shall apply with respect to taxable years beginning after December 31, 1969; except that such amendments shall not apply to any
EFFECTIVE DATE OF 1971 AMENDMENTPub. L. 92-178, title III, §311(b), Dec. 10, 1971, 85 Stat. 526, provided that: "The amendment made by subsection (a) [amending this section] shall apply to taxable years beginning after December 31, 1969."
EFFECTIVE DATEPub. L. 91-172, title II, §213(d), Dec. 30, 1969, 83 Stat. 572, provided that: "The amendments made by this section [enacting this section, amending sectionof this title, and repealing section of this title] shall apply to taxable years beginning after December 31, 1969."
- The term "Secretary" means the Secretary of the Treasury or his delegate.
- The term "corporation" includes associations, joint-stock companies, and insurance companies.
- taxable year
- The term "taxable year" means the calendar year, or the fiscal year ending during such calendar year, upon the basis of which the taxable income is computed under subtitle A. "Taxable year" means, in the case of a return made for a fractional part of a year under the provisions of subtitle A or under regulations prescribed by the Secretary, the period for which such return is made.
- The term "taxpayer" means any person subject to any internal revenue tax.