Jeremy explores the hobby loss rule through the landmark case of artist Susan Crile, who successfully defended her art business against IRS claims despite reporting losses in nearly all of 25 years. The episode breaks down the nine-factor test used to determine whether an activity has a genuine profit motive, examining how professional conduct, record-keeping, and business decisions matter more than consistent profitability. This case offers crucial lessons for practitioners working with creative professionals, startups, and any clients going through extended periods without turning a profit.

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Jeremy wraps up his two-part series on S corporation terminations by diving into what happens after an election ends, whether intentional or inadvertent. He explains the IRS's relief procedures for common mistakes like violating the one-class-of-stock rule, the crucial five-year waiting period before re-electing, and why a terminated S corp doesn't just revert back to an LLC but becomes a C corporation instead. The discussion includes real tax court cases and the specific steps needed to clean up termination issues before the IRS discovers them.

• (00:00) - Introduction and Recap of Part One

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Jeremy breaks down the three ways an S-corporation election can terminate: voluntary revocation (including the lesser-known withdrawal option from the IRM), ceasing to qualify as a small business corporation, and excessive passive investment income. He walks through the specific mechanics of each termination method, from shareholder consent requirements to the 100-shareholder limit and the one-class-of-stock rule.

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Jeremy dives into the often-overlooked legal requirements for taxpayer recordkeeping under IRC Section 6001, explaining why accurate books aren't just nice to have: they're mandatory. He breaks down the Cohan rule (and why it's widely misunderstood), explores how good recordkeeping can shift the burden of proof to the IRS under Section 7491, and offers practical ways tax professionals can encourage better client recordkeeping without becoming bookkeepers themselves.

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Jeremy concludes his three-part series on losses by examining IRC Section 1033, the tax code's provision for what happens after you replace property lost to casualty, theft, or government condemnation. When clients receive insurance payouts or condemnation proceeds, they face a critical decision: recognize the gain immediately or defer it by purchasing qualifying replacement property within specific timeframes. Jeremy breaks down the "similar use" requirements, the two to four year replacement periods depending on property type, and how basis carries over to help clients avoid unexpected tax bills when bad things force them to start over.

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• (00:00) - Welcome to Tax in Action

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Jeremy explores the complex world of theft loss deductions, examining how digital asset scams have renewed interest in these tax provisions under the Tax Cuts and Jobs Act. The episode breaks down the three key criteria for claiming theft losses, explains why timing of discovery matters more than when the theft occurred, and analyzes five modern scam scenarios from IRS Chief Counsel guidance including pig butchering schemes and romance scams. Jeremy concludes with a fascinating 1984 court case involving Civil War veterans' land rights that shows even tax court judges can disagree on fundamental questions of tax law.

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• (00:00) - Introduction: Digital assets spark new interest in theft losses

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Natural disasters, accidents, and sudden destructive events can create significant financial hardship, but the tax code provides some relief through casualty loss deductions. This episode breaks down the complex rules governing what qualifies as a deductible casualty loss, including the critical distinction between personal and business losses under the Tax Cuts and Jobs Act. Jeremy walks through the three-part test for casualty losses, calculation methods using fair market value changes, and the reporting requirements on Form 4684, using a real-world hurricane damage scenario to illustrate these concepts.

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Jeremy breaks down the complex rules surrounding Section 121's capital gains exclusion for home sales, using the Weber v. Commissioner tax court case to illustrate how taxpayers can lose out on excluding up to $500,000 in gains. The episode covers the critical two-out-of-five year ownership and use tests, explains how rental conversions can disqualify you from the exclusion, and details the partial exclusion exceptions for employment changes, health issues, and unforeseen circumstances. Understanding these nuances is essential since home sales often represent the largest financial transactions in taxpayers' lives.

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A rental property owner faces a $27,000 repair bill after a plumbing leak forces a complete bathroom renovation, water heater replacement, and structural repairs. Jeremy breaks down Treasury Decision 9636's framework for distinguishing between deductible repairs and capitalized improvements, using the three-part test of betterment, restoration, and adaptation. He also explains three valuable safe harbors including the de minimis election and routine maintenance provisions that can help property owners expense more costs immediately rather than depreciating them over time.

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Jeremy breaks down the complex world of work-related education tax benefits, revealing why most educational expenses aren't as deductible as business owners think. He explains the stark difference between limited educational assistance programs that cap benefits at $5,250 annually and business expense deductions that often get rejected by the IRS for qualifying taxpayers for "new trades or businesses." Through real tax court cases involving everyone from IRS agents trying to deduct law school to nurses upgrading their licenses, this episode exposes the narrow window where education costs actually qualify as legitimate business deductions.

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This podcast is a production of the Earmark Media