| The objectives for this study were to determine whether variables representing the nine attributes contained in the regulations of Internal Revenue Code Section 183, Activities Not for Profit, could be used to (1) predict assessment of the substantial understatement penalty (penalty) for Section 183 Tax Court cases and (2) predict the outcome of Tax Court cases decided under Section 183. The cases for each of these objectives were considered as a full sample, but were also divided into farm and non-farm categories.; The sample included 507 Tax Court cases in the thirteen year period from 1980 through 1992. The taxpayers won 132 cases and lost 375. Seventy-three cases were assessed the penalty; and, of these, fourteen were won by the taxpayers.; Twenty-three variables were developed from the nine attributes, and for each case, these variables were cited by the court as being in favor of the taxpayer, against the taxpayer, or missing from the case. The reviewers' consensus data was used as input into the principal components approach of factor analysis; and the output from the factor analysis was then subjected to a discriminant analysis.; Results of the statistical tests showed that there was no significant predictor relationship between the independent variables and penalty assessment, but the variables were very efficient in predicting the outcome of Section 183 cases. The most important variables were somewhat different far farm and non-farm cases and the fun sample. |
