THE9CRITERIA USED BY THE IRSTO DETERMINE IF YOUR
HORSE activity IS A BUSINESS
OR AHOBBY.
For nine years Betty and John Taxpayer owned a farm breeding Arabian horses. However, despite their intention
to create their horse activity as a profit making business, between 2004 and 2009 they lost millions of
dollars. The IRS took the position that any enterprise that lost that much money over so many years could not
possibly be a profit motivated enterprise and, therefore, characterized their horse enterprise as a hobby and
not a business. As a consequence of the IRS’s decision, deductions Betty and John took for all the years between
2004 and 2009 was disallowed by the IRS resulting in the imposition of thousands of dollars of past due taxes
and penalties by the IRS.
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