welcome to the virginia tech 2014 tax seminar team introductions schedule, hours, supplement &...

Welcome to theVirginia Tech 2014 Tax Seminar

Team Introductions Schedule, Hours, Supplement & CD Cell Phones to Off or Vibrate No Smoking Please CPE Credit Forms How We’ll Handle Questions

Trade or BusinessChapter 4 pp. 109 - 137

2015 National IncomeTAX Workbook™

Trade or Business p. 109

Definition of Trade or Business Selected Provisions for Trades or

Businesses New Business Models & Non-

Traditional Occupations Trade or Business References

Definition of A Trade or Business p. 110

Neither the Code nor the Regulations contain a definition of Trade or Business.

Facts and circumstances are definitive.

IRS Rulings and Court cases tend to define a Trade or Business.

Taxpayer must have a profit motive and (for some provisions) be involved.

Factors Indicating a Trade or Business pp. 110 - 111

Trade or Business Considerations by the Courts:Corp in business due to extensive real estate activities. Flint V Stone, Sup Ct 1911.

Gambler who spent full time gambling & intended to live off winnings in business even though he did not offer services or goods to others. Groetzinger, Sup Ct 1987.

And…….

Factors Indicating a Trade or Business pp. 110 - 111

Trade or Business Considerations by the Courts:Extent, continuity, variety and regularity of activity are factors to be considered. Higgins, 312 US 212 (1941).Temporary cessation of business does not necessarily mean you are no longer in business. It depends on whether cessation is temporary or indefinite. Haft, 40 TC 2 (1963) and Schnelton, TC Memo 1993-264.

Practitioner Note Rev. Rul 67-12, 1967-1 CB 29.

p. 112Cash basis taxpayer who:Incurs business expenses,Closes business before paying the expenses andLater pays the expenses

Can deduct the expenses on Sch C in the year of payment via Schedule C even though there is no income and taxpayer is no longer in business.

Part Time Enterprisep. 112 Ex 4.1

TP worked in oil field until laid off in 2013. 2014 he bought a house for $25,000. Spent $14,500 rehabbing the house. Sold house for $45,000 in November 2014. December 2014 got a full-time job in oil industry. Does not plan to rehab any more houses.

Questions 1 and 2: Is Joe in Rehab business in 2014 for SE taxes? Where should Joe report the income from sale?

Part Time Enterprisep. 112 Ex 4.1

Questions 1 and 2:

1.Is Joe in Rehab business in 2014 for SE taxes?▪ No. Not in business of rehabbing and owes no

SE tax on profit. Rehabbing one house without any intent to do more rehabbing does not put you into a trade or business. See Batok, TC Memo 1992-727.

2.Where should Joe report the income from sale?▪ Form 8949 as a Sale of a Capital Asset.▪ SP $45,000 – (Basis $25,000 + $14,500) = $5,500

Capital Gain

Sole or Principle Businessp. 112

Taxpayers can have two or more businesses as well as full time jobs. Achong, (9th CA), 1957.

Full time Federal employee held to also be in real estate business. Schott, TC Memo 1964-272.

Separate businesses require separate Schedules C or F.

Not For Profit Activitiesp. 113

§183 prevents deduction of losses where an activity is not engage in for profit.

Presumption that taxpayer is in an activity for a profit if there is profit in:▪ 3 out of 5 years or▪ 2 out of 7 years for horse activities.

If presumption is met and IRS challenges the issue the burden of proof is on the IRS.

If presumption is not met facts and circumstances in deciding taxpayer’s intent are controlling.

Impact If Not Engaged in Activity For Profit

p. 113 Gross income from activity goes on line 21,

Form 1040.

Expenses in excess of income (Losses) are not deductible.

Allowable expenses are deductible as Miscellaneous Itemized Deductions on Schedule A subject to the 2% of AGI limitation…We’ll discuss this on pp. 116-118

Profit Motive Factorspp. 113 - 114

§183 determination based on taxpayer’s intent.

Intent is determined by considering all of the facts and circumstances.

The Regulations set out 9 factors to be considered.

The Court look to all the facts including the 9 factors.

No one factor is determinative. Having more of the 9 factors does not mean you win.

Profit Motive Factorspp. 113 - 114

The 9 Reg factors used in §183 determinations:

1.Manner in which activity is carried on.

2.Expertise of taxpayer or advisors.

3.Time and effort taxpayer spend on activity.

4.Expectation activity assets will increase in value.

5.Success of taxpayer in other activities.

6.Activity’s history of profit and loss.

7.Amount of occasional profits from activity.

8. Financial status of taxpayer.

9.Elements of personal pleasure.

Hobby Activity Determinationpp. 114 – 115 Ex. 4.2

Lois always wanted a horse. As a successful businesswoman she bought a ranch

and began buying horses to be sold to disabled people for therapy.

She employees people to care for and train the horses, goes there as often as she can and rides when she is there.

She has had no sales for 6-years and has had substantial losses.

She attributes losses to the time its taken to learn the type of horse to buy and train.


Lois does not qualify for the presumption so we consider the factors in determining her real intent.

Lois spends as much time as possible at the ranch but spends little time trying to sell the horses. She devotes most of her time to her marketing company.

Lois is successful and wealthy and does not need any income from the sale of horses.

There have been losses and no sales of horses. We do not know if she has researched the activity

or her experience other than wanting horses.


Lois did build a successful marketing company.

The ranch is increasing in value but the horses may or may not be.

Lois loves horses and riding.

Which factors weigh in her favor? Which factors weigh against her? What would you tell this new client?


Which factors weigh in her favor? Against her? What would you tell this new client?

Develop a plan, get involved, market horses, run ads in magazines, learn or hire someone knowledgeable in the activity, maintain business records.

Be prepared to settle the issue….Each year stands on it’s own.

Election to Postpone Determination p. 115

File Form 5213 to postpone an IRS determination until the close of the 4th year of beginning the activity.▪ 6th year for horse activities.

Deadline for filing is 3 years from due date of return for the year the activity started or 60 days after IRS issues notice to disallow losses.

Filing Form 5213 extends the statute of limitations until 2 years after the due date of the return for the last year in the presumption.

Election to Postpone Determination p. 115, Ex 4.3

BB is a bowler who decided to go professional.

His entry fees and travel exceeded the prizes he received the first two years of competitions.

BB had no sponsors and deducted substantial losses in 2012, 2013 and 2014.

BB has not (yet) been contacted by the IRS. Con’t

Election to Postpone Determination p. 115, Ex 4.3 BB is a bowler who decided to go professional. His entry fees and travel exceeded the prizes he received

the first two years of competitions. BB had no sponsors and deducted substantial losses in

2012, 2013 and 2014. BB has not (yet) been contacted by the IRS.

1.What is his deadline for filing Form 5213?

2. If he timely files what is the statute of limitations?

3. Is filing the same as asking for an IRS audit?

4.What happens if the IRS audits the 2012 return in 2018 and finds non-bowling adjustments?


1. What is his deadline for filing Form 5213?

A. Activity started in 2012.

B. That return is due 4/15/2013

C. His 3-year period ends on 4/15/2016 if the IRS has not issued a report disallowing losses.

D. If IRS has proposed to disallow losses he must file within 60-days of the notice and before 4/15/2016.


2. What is the statute of limitations if BB files the

Form 5213?

A. Activity started in 2012.

B. So the presumption period goes thru 2016.

C. Due date for the 2016 return is 4/15/2017.

D. Two years later is 4/15/2019.

E. The statute of limitation for the 2012, 2013 and 2014 (and 2015) returns will be 4/15/2019.


3. Is filing the same as asking for an IRS audit?

A. Maybe….Maybe not.

B. Not filing could mean you lose the opportunity to postpone an IRS determination to see if you qualify for the presumption


4. What happens if the IRS audits the 2012 return

in 2018 and finds non-bowling adjustments?

A. The normal statue has expired and so the IRS cannot make adjustments to the return except for those related to or effected by the activity if the Form 5213 had been filed.

Restriction on Deductionsp. 116 - 117

No deductions are allowed if there is no income from an activity not engaged in for profit.

§183 does not apply to C Corps but does apply to:IndividualsS Corporations at the corporate level.Partnerships at the partnership level.Trusts Estates

Three Tiers for Expenses Under §183,IRC

p. 117Tier / Category 1

Expenses that are otherwise deductible such as property taxes, mortgage interest, casualties, etc. These reduce the income of the activity and then are deductible as itemized deductions.

Tier / Category 2

Activity expenses that do not affect basis such as utilities, advertising, insurance, etc. These are only deductible as itemized deductions limited by 2% of AGI & limited to the income from the activity after Tier 1 expenses are allowed.

Tier / Category 3

Activity expenses that impact basis like depreciation. Limited to income after Tier 1 & 2 expenses – Item Ded – 2%


p. 117 Question 1 Ex 4.4

Same facts as Example 4.2 - Lois’ horse activity.

Can she deduct the losses since she in the 7th year?

No.

For the presumption she needs a profit in 2 of 7 years and she has had losses in 6 years. Even with a profit in the 7th year she canNOT meet the presumption.

Under facts she was not in the activity for profit.



Same facts as Example 4.2 - Lois’ horse activity.

In 2014 Lois sold horses & grossed $27,000

She paid ranch real estate taxes of $24,000

She paid ranch wages of $48,000

She has additional feed & other expenses.

How do you report the activity on the return?

Three Tiers for Expenses Under §183, IRC p. 117 Question 2 Ex 4.4

Lois’ 2014 Income and Expenses

Sch A Sch A2% Limit

Gross Inc. – Line 21, Form 1040 $27,000

Tier 1 Expenses:

RE Taxes on ranch residence $4,000

RE Taxes on activity ( 20,000) $20,000

Diff – Tier 2 & 3 Expense Limit $ 7,000

Tier 2 Expenses:

Wages & Other ( 7,000) 7,000

$27,000

Wages and other expenses over $7,000 limit are lost.



What should you do about Lois’ prior tax returns?



What should you do about Lois’ prior tax returns?

Warn of potential IRS audit.

Offer to prepare amended returns.

Nothing if Lois so directs.



What if Lois had incorporated the ranch 6-years earlier and not made an S corp election?



What if Lois had incorporated the ranch 6-years earlier and not made an S corp election?

§183 would not be applicable.

Losses would be trapped in C Corp and only off set any income it had.



What if Lois’ ranch operation begins to have profits in the future?



What if Lois’ ranch operation begins to have profits in the future?

The 7-year presumption shifts each year so she could show profits in 2 of 7 years in the future and get the presumption.

In addition, each year stands on its own facts.

Selected Provisions for Trades and Businesses p. 118

Self-Employment Taxes Travel Expenses Away from Home Start-up Expenses

Self-Employment (SE) Tax p. 118

SE tax applies to all individuals in a trade or business as a sole proprietorship or by partner in a partnership.

§1402, IRC, imposes the SE tax.

Practitioner Note – The SE tax applies to US persons and not to non-resident aliens.

SE tax is due on foreign earnings even if foreign earned income is excludible from income taxation (unless a treaty excludes).

Income Items Excluded from Self Employment (SE) Tax pp. 119 -

120See lists on Pages 118 – 119 that include:Most income not taken into account in gross income for income tax purposes.Rents from real estate and from personal property leased with real estate unless:▪ The rents are received in the course of a trade or

business as a real estate dealer or▪ The land is used for certain conditions which are

discussed later.Dividends and interest unless received in the course of a trade or business as a dealer in stocks or securities.Capital gains and losses and certain other gains such as sales of business assets.

Income Items Included for Self Employment (SE) Tax p. 120 - 121

See list on pages 120 -121 that include:Director’s FeesRecaptures of 179 and 280F deductions when bus use drops to 50% or less.Gains and Losses from options and commodities dealers from §1256 from contracts or from property related to those contracts.Distributive share of PS income or loss whether or not distributed.Compensation & housing allowance of clergy who have not elected out of SS.Wages paid by an international organization to US citizen.

SE Income from Farming p. 121

Individuals operating farming business are subject to SE Tax. See list on page 121 but some specific items include:Patronage dividends from farm co-ops even if the taxpayer was not farming when the payments were made.Value added payments from a co-op even if the farmer bought the grain rather than grew it.Conservation reserve program payments.Storage fees paid by the Commodity Credit Corp under a reseal agreement.National Tobacco Settlement Trust payments to a farmer who raises and sells tobacco.Payments for pasturing, feed & caring for another’s cattle.

SE Income from Rental Property p. 121

Rentals of real estate and personal property leased with real estate are exempt from SE income.

But, if significant services are provided with the real estate the activity is not rentals and is subject to SE Tax.▪ Hotels, Motels, B&Bs subject to SE Tax.▪ BoBo court decision held owner of mobile

home operation was subject to SE Tax due to services provided.

Renting Personal Property p. 122

Rental of personal property (machinery, vehicles) is subject to SE Tax and goes on Sch C if not related to rental of real property.

If personal property rentals are for profit but sporadic:▪ Income goes on Line 21, Form 1040▪ Expenses go on Line 36, Form 1040▪ Write-in entry is PPR.

Real Estate Dealers p. 122

SE Tax exclusion for rents does not apply to real estate dealers.

Real Estate Dealers:▪ “Engaged in the business of selling real

estate to customers with a view to the gains and profits that may be derived from such sales.”▪ Does not include an investor who sells a

piece of real estate.

Rent from Land Used in Agricultural Production pp. 122 - 123

Generally land rentals excluded from SE tax. Exception subject to SE tax:▪ Land is leased for agricultural purposes

and lessor will materially participate in production, management and▪ There is material participation which

includes a level of pay, furnishing of assets, providing advice or consultation or inspecting activities.

Rent from Land Used in Agricultural Production p. 123

“Material Participation” for a lessor of land if he / she meets any one of four tests:

1.Pays > ½ of direct crop production, furnishes > ½ tools, equip or livestock, advises or consults with tenant or inspects production activity.

2.Regularly or frequently is involved in managing operations.

3.Works > 100 in the activity.

4. Involvement is material and substantial.

Summary of Rulings and Cases p. 124

Accountant was employee of his closely held accounting firm (S Corp).

Citrus Grove Owners were employees due to agreement to pick and market produce.

Contractors who did home repairs were not employees of homeowners but in trade or business.

Drug Dealer is in a trade or business subject to SE tax but dealer’s son who stole cash from father is subject to income tax but not subject to SE tax.


Honoraria – Acceptance of pay for an occasional speech, presentation is not subject to SE BUT doing so on a regular or continuing basis is SE Inc

Hospital Owner – Doc owned hospital but turned operation over to a management company. Doc is subject to SE Tax since operation is a business.

Incompetent Person – Business operated by guardian is SE income for incompetent person who owned trade or business.

Inventor – Not subject to SE tax since did not develop or design invention regularly.


Investor in cattle operation not subject to SE tax where involvement was minimal.

Law Practice – Gov’t employee who operated part-time law practice not subject to SE tax where fees were low, kept no records & meant to gain legal experience. Business deductions not allowed.

Leasing of crab pots and nets to fishermen for several years & expected to continue was subject to SE tax.

Oil & Gas Working Interests are SE Income subject to SE tax.


Real Estate Agents and Direct sellers are statutory non-employees and thus subject to SE tax.

Seminar Speaker – Professor who worked for University and also gave seminars is subject to SE tax on seminar income even though fees paid to him thru the University.

Tree Cutter paid hourly by a timber mill was subject to SE tax as a skilled, independent contractor.

Window Installer who did the work for one month not subject to SE tax since work not continuous.

Practitioner’s Note p. 125

Employee V Independent Contractor Distinction is determined by weighing 20-

Common Law factors. The goal is not to simply add up who the most

factors favor but to determine whether the worker is:▪ Economically dependent on the employer or▪ Is in a trade or business for himself.

Comment: More recently the IRS has divided the 20-Factors into three categories for analysis.

Regular and Continuous Involvement p. 126 Ex. 4.6

2015 Joe (Handyman from ex 4.1) decided to rehab more homes and had a list of buyers for homes.

Joe quit his job, rehabbing homes became his trade or business, he started keeping records, etc.

Question 1: Should Joe allocate expenses to each house? Question 2: Are sales subject to capital gains treatment? Question 3: Does it matter if Joe had kept his full time job?


Question 1: Should Joe allocate expenses to each house?▪ Yes!▪ Since in a trade or business §263A applies.▪ Direct expenses must be allocated to each

home.▪ Since indirect expenses are less than $200,000

@ year they do not have to be allocated and can be deducted on Schedule C.


Question 2: Are sales subject to capital gains treatment?▪ No. ▪ Since sales are from the trade or business

income is taxed as ordinary income. Question 3: Does it matter if Joe had kept his full time job? ▪ No. Even though the rehabbing of houses is part

time it is regular and continuous and so is a trade or business.

Travel Expenses p. 126

Two rules allow taxpayers to deduct travel expenses including meals and lodging:

1. Reg §1.262-1(b)(5) allows deduction of expenses incurred in traveling away from home in the course of a trade or business.

2. Commuting expenses are not deductible, transportation between places of business are deductible and transportation from a home that is a place of business to another place of business is deductible. See cited Court cases.

Practitioner’s NoteTax Home V Residence

p. 126

Tax Home and Residence are two distinct places:▪ Tax home is the area where a

taxpayer lives AND works.▪ Residence is the area where a

taxpayer lives whether or not he / she works in the area.

IRS PositionTax Home V Residence

p. 127

Deductibility of commuting transportation between home and work:

Transportation from residence to a temporary work site outside of the metro area of the residence is deductible.

Transportation from residence to a temporary work site within the metro area is deductible if a taxpayer has one or more regular work locations other than the residence.

Transportation from a residence which is the principle place of business is deductible whether or not going to a regular or temporary work site.

IRS PositionTax Home V Residence

p. 127

Temporary V. Indefinite:

▪ If employment at a work location is expected to last for 1 year or less the stay is temporary.

▪ If employment at a work location is expected to last more than 1 year the stay is not temporary.

▪ If employment is expected to last less than 1 year but goes for longer the stay is temporary but changes to indefinite when the expectation changes.

Principle Place of Businessp. 128

For transportation expenses from the residence to be deductible the residence must be the “principle place of business.”

§280A is used to define “principle place of business” except the “exclusive use” requirement is not applicable for this requirement.

So the residence must be either:▪ Used to meet with patients, clients, etc or ▪ Be a separate structure or▪ Be regularly used (not exclusively) for business.

Tax Homepp. 129 - 130 Ex. 4.7

Joe keeps his tools in his truck and drives from his residence to various job sites to rehab houses.

Joe does no administrative or rehab work at his residence. Because he has no regular place of business he cannot

deduct his commuting trip from his home to his first job site or back to home from the last.▪ Q1 – Suppose Joe rehabs a house outside of his

normal metro area?▪ Q2 – Suppose he sets up a shop in his garage?▪ Q3 – Suppose he has an office at home used

regularly but not exclusively for admin work?

Tax Homepp. 129 - 130 Ex. 4.7

Q1 – Suppose Joe rehabs a house outside of his normal metro area?

His trips are considered away from his tax home and so are deductible.

Tax Homepp. 129 - 130 Ex. 4.7

Q2 – Suppose he sets up a shop in his garage?

The IRS would not allow a deduction for his first and last trips to and from home since he does not have a regular place of business away from his residence.

The Tax Court would allow the deduction because his residence is now a regular place of business.

Tax Homepp. 129 - 130 Ex. 4.7

▪ Q3 – Suppose he has an office at home used

regularly but not exclusively for admin

work?

Joe could deduct his first trip from his residence to a job site and his last trip home from a job site.

While the requirement relies on the §280 definition of place of business the exclusive use rule in §280 does not apply in deciding the issue of transportation costs.

Start-Up Expendituresp. 130

Start-up expenses are those paid or incurred to investigate the creation or acquisition of a trade or business that would be currently deductible if incurred in operating an existing trade or business.

Investigatory costs include those to analyze or survey potential markets, products, labor supply, facilities, etc.

Preopening expenses are start-up costs incurred after deciding to open a business but before the business is opened: Ads, employee training, etc.

Start-Up Expendituresp. 130

Travel for start up, investigation and pre-opening are part of these expenses.

But, interest, taxes and research & experimental costs are excluded.

IRS distinguishes types of expenses in Rev Rul 99-23, 1999-20 IRB 3 clarified by Announcement 99-98, 1999-36 IRB 408

Start-Up Expenditures §195 p. 130

Total start-up expenses < $50,000 can elect to▪ Deduct up to $5,000 of start-up costs and▪ Amortize remainder over 180 months

Total expenses > $50,000 must:▪ Reduce deduction dollar for dollar

So if start-up costs are > $55,000

there is no up-front deduction.▪ Amortize remainder over 180 months

Website Development Costs – Existing Business p. 130 Ex. 4.8

Ernie owned an antique store but his business was dropping so he moved it to the web.

He hired someone to set up his web site.

The costs of developing the website are deductible since he is maintaining his existing business.

But suppose he started a new business…..

Website Development Costs – New Business p. 131 Ex. 4.9

Ernie owned an antique store but his business was dropping.

He decided to give up on antiques, sell art work & have the art business done on the web.

He paid someone $53,000 to set up his web site. Since start up costs exceeded $50,000 he must

reduce his normal $5,000 deduction by $3,000. He can deduct $2,000 of start up costs under

§195. The remaining $51,000 can be amortized over 180

months.

Beginning of Active Trade or Business p. 131

§195 costs are deductible in the month the business begins.

If an activity never becomes a trade or business that “begins” the start up costs cannot be amortized.

In addition, if an activity never becomes a trade or business that “begins” amortization normally allowable over 60-months cannot commence.

A new business “begins” when all of the needed assets are acquired and in place for operation.

An existing business “begins” when acquired.

Beginning of Active Trade or Businessp. 131

Airplane Dealership / Aerial Photography:▪ Franchise requirements not met in the tax year. ▪ Non-deductible start up costs & no amortization.

Automobile Production:▪ Looking into new types of auto & production failed to

prove activity had gone beyond exploration stage. Cellular Phone Company: Expenses not deductible where company was not yet

providing service to customers. Restaurant & Nightclub:▪ Trade or business not begun until open to the public.

Beginning of Active Trade or Businessp. 132

Rental Cabins:▪ Cabins renovated but not offered for rent during the

year so no deductible start up costs. Software Development:▪ Had one sale and had three developers working part-

time throughout the year for the company. ▪ Held the business was beyond start-up and pre-opening▪ ( US Court of Federal Claims decision in 1997 ) Tree Farm: Investigating tree farm activity was not a trade or

business that had begun.

Fruitless Searches for New VentureAcquiring an Existing Business

Speakers Comment: Individuals:▪ Losses incurred on unsuccessful attempt to

acquire a business are deductible only when the efforts were more than investigatory.

▪ Deduction is allowed if the taxpayer had focused on acquisition of a specific business and later abandoned the project.

Corporations:▪ Can deduct cost of searching or investigating a

new venture when efforts are abandoned.

Tax Return Reporting

Speaker’s Comment: Deduction of start-up costs is an “Other

Expense”.▪ Sch C for sole proprietorship

Amortization claimed on Form 4562▪ Then on Sch C for sole proprietorship

New Business Models & Nontraditional Occupations p. 132

Gambler held to be in the trade or business of gambling – Groetzinger, 480 US 23:

Spent 60 to 80 hours a week at dog track.Activity engaged in on a regular & continuous basis.Studied forms, programs & material to become an expert.This was his sole occupation.Intention was to make living from effort.


Caglia, TC Memo 1989-143Gambling often involves cash and poor records.Taxpayer presented credible evidence that all deposited money was not income.IRS could not solely rely on bank deposit method to determine income.


Observation:Gambling losses only deductible to the extent of gambling gains.If not in a gambling trade or business losses are deductible only as miscellaneous itemized deductions not subject to 2% AGI limitations.If in a gambling trade or business expenses (travel, meals, phone, internet) are not limited to income even though gambling losses are limited to income.


FiduciariesProfessional fiduciaries are always in the trade or business and owe SE tax unless an employee,Non-professional f are not in the trade or business unless:

1. A trade or business is included in the entity (estate or trust) and

2. The fiduciaries are directly involved in the trade or business and

3. The fiduciary fees are related to the operation of the trade or business.


Creative Occupations:An artist and writer with 20-years of losses was in a trade or business for profit.In the field it takes extensive time to become known well enough to charge prices that will generate a profit.Churchman, 68 TC 696 (1977)


Selling Personal Property:An IRS employee also sold personal property on the internet.She argued she was not in business.Tax Court held she was in a trade or business, ▪ Allowed IRS’ reconstruction of income, ▪ Allowed some expenses even though not

proven and ▪ Imposed the accuracy related penalty.

Orellana, TC Summary Opinion 2010-51.

New Business Models & Nontraditional Occupations p. 133 - 134

Services:Many businesses now offer services via internet.Uber and Lyft are companies that provide drivers or essential taxi services.The California Labor Commission has held the drivers are employees and that Uber owes employment taxes.Uber appealed the decision on June 16, 2015.California uses factors like the IRS to determine whether a worker is an employee or independent contractor………..such as……….

New Business Models & Nontraditional Occupations p. 133 - 134

1. Uber controlled cars by requiring registration with Uber and cars could not be more than 10-years old.

2. Uber monitored ratings and terminated if a driver was rated below 4.6.

3. Drivers could hire others but only those approved by Uber could use Uber’s intellectual property.

4. Passengers paid a set price and Uber pays driver a set fee.

5. Only Uber could charge a client a cancellation fee.

6. Uber prohibits taking tips because it impacts its ads setting prices.

7. Driver’s only investment is labor, car and iPhone.

Trade or Business Referencespp. 134 - 138

These pages list Code Sections that involve, refer to or impact the term “Trade or Business”…..For example:

Page 135 provides that §162 allows a deduction for all ordinary and necessary business expenses.

Page 135 erroneously provides that §195 allows a $10,000 deduction for start up costs. The amount should be $5,000.

Page 136 points out that §280E prohibits deduction of expenses of an illegal drug operation. AND that’s true in States where drugs are legal because they are illegal under Federal law - Comment – That is interesting and could create substantial income from the drug companies in these States

Chapter 4 – Trade or Business

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