
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC183]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
               Subchapter B--Computation of Taxable Income
 
      PART VI--ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
 
Sec. 183. Activities not engaged in for profit


(a) General rule

    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.

(b) Deductions allowable

    In the case of an activity not engaged in for profit to which 
subsection (a) applies, there shall be allowed--
        (1) the deductions which would be allowable under this chapter 
    for the taxable year without regard to whether or not such activity 
    is engaged in for profit, and
        (2) a deduction equal to the amount of the deductions which 
    would be allowable under this chapter for the taxable year only if 
    such activity were engaged in for profit, but only to the extent 
    that the gross income derived from such activity for the taxable 
    year exceeds the deductions allowable by reason of paragraph (1).

(c) Activity not engaged in for profit defined

    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.

(d) Presumption

    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''.

(e) Special rule

                           (1) In general

        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. 
    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.

                         (2) Initial period

        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).

                            (3) Election

        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.

     (4) Time for assessing deficiency attributable to activity

        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.

(Added Pub. L. 91-172, title II, Sec. 213(a), Dec. 30, 1969, 83 Stat. 
571; amended Pub. L. 92-178, title III, Sec. 311(a), Dec. 10, 1971, 85 
Stat. 525; Pub. L. 94-455, title II, Sec. 214(a), title XIX, 
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1549, 1834; Pub. L. 97-354, 
Sec. 5(a)(23), Oct. 19, 1982, 96 Stat. 1694; Pub. L. 99-514, title I, 
Sec. 143(a), Oct. 22, 1986, 100 Stat. 2120; Pub. L. 100-647, title I, 
Sec. 1001(h)(3), Nov. 10, 1988, 102 Stat. 3352.)


                               Amendments

    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, Sec. 1906(b)(13)(A), 
struck out ``or his delegate'' after ``Secretary''.
    Subsec. (e)(4). Pub. L. 94-455, Sec. 214(a), added par. (4).
    1971--Subsec. (e). Pub. L. 92-178 added subsec. (e).


                    Effective Date of 1988 Amendment

    Amendment 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 section 1 of 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 section 1 of this title.


                    Effective Date of 1982 Amendment

    Amendment 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 section 1361 of this title.


                    Effective Date of 1976 Amendment

    Section 214(c) of Pub. L. 94-455 provided that: ``The amendments 
made by this section [amending this section and section 6212 of this 
title] shall apply with respect to taxable years beginning after 
December 31, 1969; except that such amendments shall not apply to any 
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.''


                    Effective Date of 1971 Amendment

    Section 311(b) of Pub. L. 92-178 provided that: ``The amendment made 
by subsection (a) [amending this section] shall apply to taxable years 
beginning after December 31, 1969.''


                             Effective Date

    Section 213(d) of Pub. L. 91-172 provided that: ``The amendments 
made by this section [enacting this section, amending section 6504 of 
this title, and repealing section 270 of this title] shall apply to 
taxable years beginning after December 31, 1969.''

                  Section Referred to in Other Sections

    This section is referred to in sections 280A, 6212 of this title.
