As a Tax Specialist handling, primarily Equine cases I am frequently asked to handle the defense of IRS section hobby loss cases, I evaluate these cases carefully because I will not take someone’s money if they do not have a reasonable chance of winning their case. There are certain behaviors that almost certainly will cause a taxpayer to lose his or her case.
(1) Poor behavior
Don’t file your tax returns on a time basis. This will almost invariably secure you a place on the IRS list of people they choose to audit. It shows defiance and carelessness.
(2) Show disregard of the law
When the IRS reviews the facts of a horse racing venture and if they derive facts such as those below the taxpayer will be in serious trouble:
The taxpayer has been in the horse racing business for 20 years and has never shown a profit. They asked the taxpayer if he has a business plan and he will reply “NO”.
(3) Failure to report Income
The IRS takes a dim view of those who fail to report all income show on forms 1099 reported to them. This will almost certainly result in at least a letter audit by mail.
(4) Other ways to get in trouble with the IRS re Horse operations
Unwillingness to change the operation.
Prior accountant refused to sign return.
Poor choice of trainers
This a a short list of major errors one can make in the horse field that will attract IRS attention.