Racing Without a Profit Objective and Crashing into Section 183: Zidar v. Commissioner
Bronson J. Bigelow
In Zidar v. Commissioner, a taxpayer who spent in excess of $100,000 to build a stock car for the American Speed Association’s 1992 racing season, obtained only $5,571 in sponsorship money, and destroyed the car in the first race was found to lack the required profit objective for purposes of section 183. The Tax Court upheld the Commissioner’s disallowance of all deductions relating to the taxpayer’s stock car activity in excess of the $5,571 of income generated by the sponsorships and upheld the imposition of a 20% accuracy-related penalty. Though Zidar is a memorandum decision, the Tax Court’s structured analysis and application of Regulation section 1.183-2 makes the decision a valuable guide for taxpayers and their advisers. Moreover, the decision clearly illustrates the steps to follow in determining if an activity is engaged in for profit under sections 162 and 212.Part I of this Note discusses the statutory framework of section 183 and Regulation section 1.183-2. Part II details the facts of Zidar and the decision of the Tax Court. Part III analyzes the relevant factors of Regulation section 1.183-2 as applied in Zidar, and identifies an important trend helpful to taxpayers. Part IV concludes that the taxpayer could have acted differently to establish the requisite profit objective.