There are a multitude of factors that the courts use to determine the existence of a profit motive. With the exception of multi-level marketing schemes, I have seldom seen the I.R.S. raise the specter of hobby losses, absent an exotic, sexy, high visibility or creative business. Thus, one typically encounters the issue of hobby losses with auto racing, horse racing and breeding, dog breeding and grooming, sailing, gentleman farming, family wineries, art, music, writing and acting. There seems to be a direct correlation between the amount of money the taxpayer has and the frequency with which this issue is raised. It is easy to understand why the I.R.S. loves to hone in on these kind of losing businesses.
Many affluent taxpayers view the above businesses as symbols of social status.
Thus, they are not in the business to earn a profit but rather social climb. The profit motive, if present at all, may well be secondary. Their participation is more closely associated with their enjoyment of the activity. Claiming a tax writeoff for the losses of that activity is merely an after thought and a way to get the government to subsidize that activity. It seems the more one enjoys the business activity, the more intense the I.R.S. scrutiny.