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Does the IRS limit the number of years a corporation (in…

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Does the IRS limit...

Does the IRS limit the number of years a corporation (in this case, a retail clothing store), can deduct losses?

Accountant's Assistant: The Accountant will know how to help. Please tell me more, so we can help you best.

The former is my only question.

Accountant's Assistant: Is there anything else the Accountant should be aware of?

I don't think so.

Submitted: 5 months ago.Category: Tax
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Answered in 8 minutes by:
11/18/2017
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 5 months ago
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 13,980
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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For a retail clothing store, typically not.

...

The "hobby loss rule" states that if an activity is profitable in three years out of five then it can be treated as a business in the one or two year(s) that a loss was realized.
...
For example, if a man builds and sells birdhouses as a hobby, but only makes a profit one year out of the last five, then the losses are considered a hobby loss. The law does not prohibit taxpayers from making deductions on such activities if they are prepared to argue that the losses were created while attempting to make profit.

...

IRS says this is a total facts and circumstances test. If you've been profitable before, and have reasonable explanation for the losses, and show that it's reasonable to expect to be profitable in the future, they may be willing to continue to allow the loss.

...

In my experience, once the taxpayer has convinced the Revenue Officer (RO) of this, then after another two years of losses, they will begin to treat as a hobby (that cannot reasonably be expected to be profitable) and disallow losses over the amount of revenue.

...

Said differently, not allow the losses to reduce other income on the owner's return or be carried forward.

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