Hello and thank you for using Just Answer.The IRS is very serious and strict about the business versus hobby rules on these losses. I personnally can speak to the strict adherence to that portion of the code.
Internal Revenue Code Section 183 (Activities Not Engaged in for Profit) limits deductions that can be claimed when an activity is not engaged in for profit. IRC 183 is sometimes referred to as the “hobby loss rule.”But if she has been doing this for 30 years and for those first 20 it was profitable then that is not the same thing. Because of that the limitations for the 2 out of 7 years would no longer apply. The ruling is not to look at each 7 year period and see if 2 of those years were profitable. If out of the first 7 years, 2 were profitable then she has pasted the test. Of course now is the time to see if throwing more money down the business tube is personally responsible.