We're With The Band – Kind Of
think trying to get a current deduction for backing their daughter’s music management career was probably a bridge too far. I would have gone for a more conservative approach that would have likely stood up and assured an ultimate ordinary deduction. Have the band, itself, organize as an LLC with Sara as one of the managing members. Give the Schlieverts a preferred interest with losses allocated based on positive capital accounts. There would be no Section 183 issue then. The passive activity rules would defer any deductions, but that is a lot better than having them entirely blown away.
Organizing Junk Mail Does Not Qualify As Manufacturing
In a modern interconnected economy, distinguishing between “manufacturing” and other activities is silly.
The law’s unwise distinction between “production” activities and other activities encourages taxpayers to try to qualify, and forces the courts to try to draw distinctions.
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Over and over again courts have said that there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.