In determining whether an activity should be classified as a hobby, the tax law provides a rebuttable presumption with regard to the profits or losses of an activity. Which of the following statements describes the profit/loss test which must be satisfied in order to meet the presumption that the activity is not a hobby?

a. The activity shows a profit for 3 of the 7 previous years.

b. The activity shows a loss for 3 of the 7 previous years.

c. The activity shows a loss for 3 of the 5 previous years.

d. The activity shows a profit for 3 of the 5 previous years.

e. None of these choices are correct.

Question

Business

Jair Hatfield

1 August, 13:45

In determining whether an activity should be classified as a hobby, the tax law provides a rebuttable presumption with regard to the profits or losses of an activity. Which of the following statements describes the profit/loss test which must be satisfied in order to meet the presumption that the activity is not a hobby?

a. The activity shows a profit for 3 of the 7 previous years.

b. The activity shows a loss for 3 of the 7 previous years.

c. The activity shows a loss for 3 of the 5 previous years.

d. The activity shows a profit for 3 of the 5 previous years.

e. None of these choices are correct.

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Answers (1)

Know the Answer?

Leandro Singleton · Answer 1

d. The activity shows a profit for 3 of the 5 previous years.

Explanation:

Rebuttable presumptions are assumption in which all facts are considered true unless someone comes and proves it. The activity classified as a hobby if the test is conducted for profits. The activity should show profits in 3 of the past 5 years to be presumed as a hobby. Therefore the correct answer is d.