Originally Posted by regnis View Post
There are essentially 8 or 9 factors to look at in determining if the activity is a hobby or a business. Profit is only 1 factor, and the 3 of 5 rule is not an actual rule but a layman's belief.
http://www.irs.gov/uac/Business-or-H...for-Deductions

"The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year"

Originally Posted by regnis View Post
Other relevant factors are (1) time and effort spent on the activity, (2) does he operate the activity as a business, and studied and trained and consukted with advisors and profwssionals, and does he maintain separate records and bank accounts etc, (3) does he intend to make a profit--early year losses are ok and economy based losses are ok, and if he has had profitable years, how much profit, (4) has he turned other businesses into profitable businesses in the past---track record, and how do his profits and losses compare from year to year--ie does he lose big and have tiny profits (hobby) or are the profits sizeable (business). I have lumped some of the various factors into a few of the above.

But don't set your mind to the 3 of 5 because it is a fallacy.

While I have stated in other threads that I am not an authority on gaming (although fairly knowledgeable), this is in my field of expertise.
I think the key is that the business shows a profit. Singer stated he never paid any taxes. That would violate the most essential rule and cannot see any auditor allowing him to file if his tax bill was zero.