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Bill Robinson - Tax File Deductions

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Submitted By ningampally
Words 1739
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Case Background: Bill Robinson is a physician whose specialty is in Obstetrics and Gynecology. His wife Joy is employed as a administrator with home healthy agency. Because of the medical malpractice insurance, Bill discontinued delivering babies. To offset loss of income Joy became a sales person for several direct marketing companies. Direct Marketing companies required Joy to purchase a certain amount of inventory each month. Joy received commissions based on the sales and also part of commissions earned by the down line distributors Joy has signed up as a upline distributor.
Joy has been deducting $20,000 as business losses from five years since she started business.
IRS audited Mr. and Mrs. Robinson tax filings and disallowed deductions for business losses stating them under Hobby losses.

---------------------------------
Johnson and Jason, CPAs
100 Dorsett Boulevard
St.Louis, MO 63043
October 18, 2010

Mr. and Ms. Robinson
120 Boulevard
Richmond Hill, Georgia 31324

Dear Mr. and Ms. Robinson

This letter is in response for your request of our advice and review of your recent filed tax returns. Our conclusions are based upon the tax laws and research of different cases we have studied. After review of your tax situation, we came to conclusion that we do not have enough significant reasons to support deduction of Marketing Business losses. We can deduct losses only if we satisfy certain factors according to Regulation 1.183-2(b).
There are nine factors under Regs. § 1.183-2(b) used to evaluate whether an activity is engaged in for profit. And the way the Marketing Business has been conducted Merely satisfy few of them. Please see brief explanation of the factors to understand why the direct marketing business deduction have been disallowed.
(1) Manner in which taxpayer carries the activity: Even though the activity is conducted

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