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Internal Revenue Code §183 generally prohibits taxpayers from deducting expenses related to activities in which the taxpayer is not primarily motivated by profit. The applicable Treasury Regulation provides nine specific factors to consider in determining if a taxpayer’s activity is motivated primarily by profit. This paper reviews the United States Tax Court’s application of the nine factors in a sample of decisions reported between 2005 and 2015, inclusive, investigating potential inconsistencies between the Regulation language and observed outcomes. We find that a taxpayer successfully demonstrating three factors has a 158 percent greater probability of winning than a taxpayer demonstrating only two factors. We also observe that operating in a businesslike manner is a key factor to taxpayer success. Finally, we show that pro se taxpayers generally fare worse than represented ones, although the marginal reward to an additional favorable factor may be higher for them than for represented taxpayers. [ABSTRACT FROM AUTHOR]

Purpose: – The purpose of this paper is to examine the January effect, a well-documented capital markets pricing anomaly in which January return premiums are observed to be on average higher than in other months of the year. Extant literature focusses primarily on investor trading behaviors and incentives. This study is different in that it investigates the link between the unusually high returns characteristic of the January effect and accounting earnings, a popular measure that investors use to judge firm value. Design/methodology/approach: – The empirical model used in this study is derived from the analytical framework of Ohlson (1995) and Feltham and Ohlson (1995), which explains returns as a function of current and future accounting earnings. Isolating firms that exhibit January effect return premiums from those that do not offers a deeper look at the characteristics of the anomaly. Regression analyses are carried out using a modified Fama-MacBeth (1973) methodology. Quarterly earnings and returns data are drawn from Compustat and CRSP. Findings: – The main finding is that the association between January returns and first quarter earnings is unexpectedly and significantly negative, not positive as predicted by the model. Coefficient signs for the other three quarters behave as expected. Additional analyses highlight a difference in the returns-earnings association between firms affected by the anomaly and those that are not. Robustness checks indicate that the findings are not spurious. Originality/value: – Rather than applying trading or multifactor economic models that rely on some level of market inefficiency or irrational investor behavior, this study uses an accounting valuation approach that relies on neither. The unexpected negative association between January effect returns and earnings suggests that other factor(s) besides earnings may play into valuation judgments for investors in such firms, and invites further research. [ABSTRACT FROM AUTHOR]

Following we characterize a variable that represents the 'other information' term in the ) framework using the security return specification. We interpret this variable as capturing the market's expectation that earnings change will persist into the future. This expectation can be measured using data that is readily available to capital markets researchers: future forecasts of earnings and realized accounting earnings. We show in a returns context that expectations for accelerating (decelerating) earnings growth are rewarded (discounted) by the market. While omitting other information may not be important in a reasonably long window such as a year, it becomes crucial in a shorter window. Even in the annual window, the inclusion of the earnings change persistence variable significantly improves explanatory power of the Ohlson model for returns. Finally, we offer evidence that the association of returns with earnings levels and changes observed in annual windows is robust to the quarterly time frame and we establish that the proper specification for quarterly earnings change is consecutive, not seasonal. [ABSTRACT FROM AUTHOR]