first it must be a trade or business. there is no definition in the Internal Revenue Code. Rather it's based on numerous court rulings decided using the facts and circumstances in each case
from the IRS
Trade or Business
A trade or business is generally an activity carried on for a livelihood or in good faith to make a profit. The facts and circumstances of each case determine whether an activity is a trade or business. Some of the important facts and circumstances used to make this determination include:
- regularity of the activities,
- regularity of the transactions,
- production of income, and
- ongoing efforts to further the interests of your business.
if this activity produces a loss in 3 out of any 5 consecutive years the IRS can invoke the hobby loss rules under IRC 183. Then the loss will be denied and you'll end up with a bill for the taxes, penalties which could be substantial and interest.
you should consult with in independent tax pro probably with a large firm because they may have more expertise in this area. If you call that's a question you should ask - their expertise in this area.
