The difference between a hobby and a business for the IRS is how you conduct your operations and activities. For example, if your expenses are exceeding your income from racing, you are not tracking racing related finances, and you are not making any changes to how you manage your racing activity, the IRS will likely try and classify racing as a hobby (because you do it regardless of whether you are making money or not).
Conversely, if you manage your racing related finances, and make (and can document) prudent business decisions to make the racing activity profitable, the IRS will be far more likely to treat the activity as a business.
There is a risk with racing, the IRS will try and treat enjoyable activities as hobbies because they are fun. Documentation is the only thing that can prove them other wise.
If the IRS reclassifies a business as a hobby, they will disallow losses and possible make you repay a lot of back tax, penalties, and interest.
