Thank you for your question.
I apologize for it taking so long but it was in the wrong section. We just picked it up in tax.
The IRS says that if you do not make a profit after a period of time then you can be classified as a hobby. The primary difference to you is that if you are a hobby, you can normally only write off the expenses to the level of income you bring in.
The general rule is making a profit in at least 2 of the last 5 years. BUT there is an exception that can allow you to continue to operate as a business.
Read more about this here: http://www.irs.gov/newsroom/article/0,,id=172833,00.html