If you have a mixed self-employment situation where 2 activities are lucrative but 1 of the activities has losses for the 2nd consecutive year, can that trigger problems?

[staxes]

With problems I mean: can the IRS ask you to close this branch of self-employment?
Actually the losses are due to costly certification procedures which until this point turn all income from this branch of self-employment into losses (a situation that may continue for another couple of years).

[MichaelL1 · Accepted solution]

The IRS can never ask you to close a branch of self-employment.

If it does continue to have losses, one of the things IRS would look at are the forecasts of profitability and how the business is being run.  If you have a well laid out plan and see profits in the future, and want to keep going with it, then go for it.

IRS really looks at business activities that have no potential to turn a profit and have a pleasure element to them (such as raising horses that are primarily to ride).  Your activity does not sound like that. 

Now, do you have a greater risk of an an audit with a loss activity, yes, you do.  However, if it accurate, then you need to show it on the tax return.