The first test is the profit test. You must prove that you have started and continue to operate your business with the intent of making a profit. The IRS defines a business as an enterprise that makes a profit in three out of five consecutive years. This is fairly straightforward, but is not always easy to prove. In order to provide a broader definition for business, the IRS also has a factors and circumstances test that is used if you cannot prove the profit test. The factors and circumstances test is subjective and requires an.
