Question 4 (12 points) Lucille always wanted to be a baker. In 2009, she opened a bakery in a retail store in the downtown of a mid-sized town, and she operates this as a sole proprietorship (Schedule C). At first business was difficult and she reported operating losses, but she worked hard at it and showed profits in 2011, 2012, and 2013. However, during 2013 the large grocery store in town put in their own bakery. As a result, Lucille's volume of bread sales (a very important aspect of her business) began to fall. Despite her best efforts, she posted operating losses of $12,000, $15,000, and $25,000 in 2014, 2015, and 2016, respectively. Her sales peaked at $550,000 in 2013, but were still over $300,000 in 2016. Lucille is expanding her custom desert baking line and hopes that this will help her return to profitability. When she met with her CPA to prepare her 2016 tax return, the CPA said that under the tax rules, Lucille would not be able to deduct the operating loss on her bakery because the losses indicate that this is a hobby. Required: