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How S Corporations Treat Hobby Losses

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How does one include a hobby into a S Corporation? And if one shareholder were to include a hobby, I would also assume that all shareholders would have to follow suit for consistency. Intuitively it makes sense that adding a hobby would create a red-flag, but under what context does the red-flag arise?

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Solution Summary

Citing legal authority and tax forms, this solution discusses the treatment of hobby losses by S corporations and their shareholders.

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IRC Section 183(a) states that "In the case of an activity engaged in by an individual or an S corporation, if such activity is not engaged in for profit, no deduction attributable to such activity shall be allowed under this chapter except as provided in this section." IRC Section 183(b) continues that "In the case of an activity not engaged in for profit to which subsection (a) applies, there shall be allowed ... the deductions which would be allowable under this chapter for the taxable year without regard to whether or not such activity is engaged ...

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