The Tax Court has found that a taxpayer, a patent attorney by trade, was entitled to substantiated business expense deductions stemming from his automobile restoration business, as he intended to make a profit from the activity (R.B. Main, TC Memo. 2016-127). The taxpayer successfully proved that the primary objective of his automobile activity, the restoration and then sale of 1955 and 1956 Plymouth automobiles, was to make a profit under the standards of Code Sec. 183(b).
The court found that the taxpayer advertised his business online, in-print and at live events. In addition, the taxpayer traveled outside of his home state to acquire cars at bargain prices, as well as contracting with third parties to manufacture parts. Furthermore, the taxpayer abandoned unprofitable projects upon determining that he was incapable of restoring certain cars. The court concluded, “Although his manner of carrying on this activity was unsophisticated, it was businesslike.”
Additionally, the Tax Court determined that time and motive weighed in the taxpayer’s favor. The taxpayer devoted a significant amount of time to his automobile activity, and would handle all material aspects necessary. Moreover, the taxpayer’s patent business was undergoing a downturn in the year in issue, which indicated both that he had the time for a restoration business and that he had an incentive to make car restoration profitable, since, in the future, it may have been his primary source of income.