To make a valid election, the taxpayer must file Form 5213, Election to Postpone Determination as to Whether the Presumption Applies That an Activity Is Engaged in for Profit, and execute a waiver of the statute of limitation.
Practice tip: While filing Form 5213 allows a taxpayer additional time to establish the existence of a trade or business activity, it also alerts the IRS to a possible hobby loss issue.
(The determination of the safe-harbor profit presumption is delayed until the end of the fourth year following the first year of the activity (i.e., year 5) and three of those five years produced net profit.) Observation: The Tax Court previously held that Form 5213 not only extends the period for assessing deficiencies associated with an activity, but it also applies to a taxpayer's right to make a claim for an overpayment.
It is possible to combine a special presumption with the general presumption and to shift the burden of proof for the years 1987 and 1988 to the Service by filing Form 5213
, Election To Postpone Determination as To Whether the Presumption That an Activity Is Engaged in for Profit Applies.