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Taxation: would a fifth year business loss ensure an audit?

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If a small business claims a loss in the fifth year of business, will this be an audit request to ensure that a business is in business for profit?

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Solution Summary

The solution explains the approach by the IRS and the auditor for a fifth year loss, and then gives a comprehensive example of a set of circumstances where a fifth year loss might be allowed.

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With the government, each year stands on its own. In this regard, a return selected for audit would be judged for only the year of audit. The selection process would not know about the other four years. The issue of the other four years of loss would only be known once the return was selected and the auditor ...

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