No Business Loss Deduction for an Investor

Federal tax law treats businesses differently than investments. A California resident invested in an Indiana company and tried to deduct a $2.1 million loss as a business loss. The Tax Court said no. To be a business, a taxpayer must show he or she consistently conducted activities in a systematic and businesslike manner and maintained books and records for the business. Here, the investor didn’t participate in its business activities; he only made investments. What’s more, there were inadequate books and records. He didn’t provide any substantive evidence regarding gross receipts or deductible expenses, but instead offered invoices and a spreadsheet of funding that commingle amounts spent for capital assets, materials, and labor. #IdeaoftheDay