Hank owns a Hobby shop and made a Sec 183(e)(1) election in year 1. The profits and losses for the 1st five years of operations are:

Yr 1 - ($25,000) loss

Yr2 - ($35,000) loss

Yr 3 - $ 3,000 profit

Yr 4 - $ 25,000 profit

Yr 5 - $ 30,000 profit

a. What is the effect of Sec 183 to Hank?

b. Since this is a Hobby shop, isnt this automatically presumed a Hobby loss?

c. Can the IRS challenge Hanks losses for years 1 or 2