In determining whether an activity should be classified as a business or as a hobby, the satisfaction of the presumption (i.e., profit in at least three out of five years) ensures treatment as a business.

Question

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The presumption of profit in at least three out of five years is a guideline, not a guarantee, for classifying an activity as a business. Other factors are also considered by the IRS.

In Determining Whether an Activity Should Be Classified as a Business