Charles is a CPA who owns his own accounting firm. He has developed a very successful practice and this year his firm has net income of $500,000. For many years he enjoyed NASCAR racing and began to race his own car on the weekend five years ago. During the current tax year, he had winnings from races of $40,000. This was the first year that he had earned any revenue from racing. His racing expenses totaled $100,000 for the year. Charles competed in three races during the current tax year. Which of the following statements is false with regard to his race car activities?

-Since Charles has never had any income from car racing, the presumption is that this activity is a hobby.

- Since the car racing activity is a hobby, Charles can deduct expenses only to the extent of his winnings of $40,000.

- If Charles wants to increase the likelihood that his car racing will not be classified as a hobby in future years, he will need to increase the number of races in which he competes.

- Since the car racing activity is a hobby, Charles cannot deduct any expenses related to this hobby but must report all winnings of $40,000.