This is a great question. We consider various alternatives—for example, whether a transaction passes the test under Section 183 but not a related tax doctrine (and vice versa).
A recent tax shelter cases involving Section 183 focused on the lack of profit motive and the associated lack of economic substance. The IRS viewed the taxpayer’s shelter as “abusive.” The investors, with absolutely no knowledge or experience in the field of art, without obtaining expert advice, and without and challenges to the offering price, purchased purported “reproduction masters” of Picasso paintings at a price that had no reasonable relation to a reasonable fair market value of the property. The purchase was financed largely through nonrecourse notes with their sole security being the reproduction masters themselves. It was shown that the taxpayers did not generate gross income from the activity. The Tax Court labeled the activity a “generic tax shelter” focusing on the following factors:
Thus, the IRS is still using Section 183 in conjunction with other tax doctrines to combat abusive tax shelters.