700 F.2d 402 (7th Cir. 1983)
Nickerson v. Commissioner is a leading federal income tax case on the boundary between business activities and hobbies under Internal Revenue Code § 183.
Whether the taxpayers' farming operation was an activity engaged in for profit within the meaning of IRC § 183, such that their losses were deductible as ordinary and necessary business expenses rather than limited by the hobby loss rule.
Under IRC § 183, deductions attributable to an activity not engaged in for profit are limited to the income from that activity. An activity is engaged in for profit if the taxpayer has an actual and honest objective of making a profit. This determination is based on objective facts and circumstances, commonly evaluated using the nonexclusive factors in Treas. Reg. § 1.183-2(b), including: (1) the manner in which the activity is carried on; (2) the expertise of the taxpayer or their advisers; (3) the time and effort expended; (4) the expectation that assets may appreciate; (5) the success of the taxpayer in similar or dissimilar activities; (6) the activity's history of income or losses; (7) the amount of occasional profits; (8) the taxpayer's financial status; and (9) the presence of personal pleasure or recreation. No single factor is controlling, and a reasonable expectation of profit is not required.
Reversing the Tax Court, the Seventh Circuit held that the Nickersons engaged in their farming activity with an actual and honest profit objective. Accordingly, their farm expenses were deductible as business expenses and were not limited by § 183.
Nickerson is a cornerstone case on § 183. It clarifies that the relevant inquiry is not whether profitability is likely or reasonable, but whether the taxpayer actually and honestly seeks profit as evidenced by objective, businesslike conduct. The decision guides courts and practitioners to apply the nine regulatory factors holistically and cautions against equating persistent losses, alternative sources of income, or incidental personal enjoyment with a lack of profit motive. For law students, the case provides a model application of the § 183 framework and a reminder that start-up struggles and adverse events can coexist with genuine business intent.