For the past 2 years, Tim has worked as a high school physical education teacher. He is also a bodybuilder and a part-time graduate student in educational technology at State University. In preparing for a master's thesis, he decided to participate in Arnold's World Bodybuilding training program and analyze advanced technology used to help students absorb physical education. Arnolds training program has a regular faculty, curriculum, an enrolled body of students, and advanced technology in its gym equipment.

Tim earned $10,000 during the fall, 2016 as a bodybuilder by coming in second in the state contest. Tim paid $4,000 in spring, 2017 for his master's degree tuition at State University for one class on advanced computer technology and another $3,000 to participate in Arnold's World Bodybuilding training program.

Should Tim treat his activities as a bodybuilder as a business or a hobby? If he can treat the income and expenses as a business, what would his net profit (or loss) be at the end of 2017? If the activity is a hobby, what is his net profit/loss? Consult Reg. Sec. 1.183-2(b) and other authoritative sources to support your conclusion.

Can you provide the reasons why this can be used and how would it be explained in a memo to the client