How I Did It
Drag racing wasn't just my passion, it was my business. Getting the IRS to agree was the sweetest victory.
(MONEY Magazine) – BY JOHN MORRISSEY, 57, WETMORE, KANS.
"In 1969, at age 20, I competed on a drag strip for the first time. Twenty years later I was winning several $500 to $1,000 purses a year. Since the racetracks reported my winnings on a 1099, my C.P.A. said my tax returns should reflect my expenses as well. I got to thinking that I could make money by racing if I could find a sponsor. In 1998 a local casino agreed to pay me $15,000 to display its logo. That year, after expenses, I cleared $587 by racing and appearing at public events. Unfortunately, my sponsorship lasted only one year.
With no backer, I lost $61,371 over the next three years. These deductions triggered an audit--the IRS said that my racing was a hobby, not a business. I appealed this decision, and my 1999 deductions were accepted, but racing losses for 2000 and 2001 were again denied. This didn't seem logical because I had continued the same business practices, keeping separate accounts for my winnings and business payments, pursuing new sponsors and maintaining performance logs on my vehicle.
The next step was filing with the U.S. Tax Court. Since attorney fees could have exceeded what the IRS was trying to collect, I decided to represent myself. I began by organizing my supporting documentation. I then went to a local university law library. I reviewed all of the case law that the IRS had referred to. I then found more examples of "hobby" vs. "for profit" rulings that supported my position. In July 2005 the U.S. Tax Court ruled in my favor. I had successfully represented my case against an IRS attorney and won, keeping $18,778 in my pocket. It was better than any checkered flag."