Harris, from Granville County, N.C., worked in a knitting mill. He loved hunting quail and working the pointer and setter dogs used to find the birds. After training his own dogs for years, he decided he could earn extra money in his spare time doing this for others. For a while, he trained and boarded a few, but soon realized he didn't have enough dogs or time to make a profit. After two pointless years, he abandoned the hunt.

His trip to court was successful. The judge allowed the deductions. He said Harris was an experienced and widely-respected dog handler, and he quit as soon as he realized he couldn't make a profit.

THE MORAL: The IRS again barks up the wrong tree.

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The IRS frequently challenges fun activity losses. But you can win if it was reasonable to expect a profit. The next three court cases illustrate the issue.

Dr. Thomas Burger and his wife, Marian, studied, explored and researched the breeding of Afghan hounds. They bought three dogs for $12,000. One had nine puppies that sold for from $700 to $7,500 each.

Marian worked full-time on the project. Thomas worked early mornings, evenings and weekends. They decorated one room of their Evansville, Ind., home with Oriental artifacts and used it as an office. To continue the eastern motif, they bought urns, a concrete Buddha and an Oriental iron gate for the yard.

Not surprisingly, in six years their losses mounted to a total of $239,778.

The IRS disallowed the deduction saying their hobby had gone to the dogs. The court agreed. The couple didn't watch their costs as a vigilant business person would. The judge said, the profit possibility was small while the gratification possibility was large.

THE MORAL: The IRS hunts hobby losses with dogged determination.

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Airline pilot Robert W. Dickson of River Falls, Wisc., a sailboat enthusiast, decided he could make money leasing his boat to a company for its charter operations. The contract allowed him to use it 28 days a year.

In three years he lost more than $20,000.

The IRS disallowed the deductions. The tax man said this was a hobby because Dickson enjoyed sailing. The agency frequently challenges fun activity losses.

The judge reversed the agency. He considered the pilot reasonably could expect to make profit for these reasons:

• Dickson was an expert sailor who understood the boat business.
  
• Boats of this type increased in value, and the increase could offset any losses.
  

The judge disagreed with the agency's logic saying "suffering has never been a prerequisite to deductibility."

THE MORAL: Business need not be torture, and a loss deduction can be a pleasure.

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Computer system analyst Philip P. Bassett of Nashua, N.H., researched his book by watching television and taking long weekend drives to bookstores. He said he spent more than $58,000 on his book homo Ignoramus.

The IRS and a judge denied the deductions. The judge said the book was poorly written and its "ludicrous contents practically guarantees no profit." In the book two aliens arrived on earth and found no people. One of them found Bassett's book which tells how the people's environmental devastation caused their self destruction. The alien said, "This is a well-documented study."(more at Hobby vs. Business)

Released 9-9-96