Rejection of the Deduction of Losses from Self-Employment for the Federal Direct Tax 2001

Facts

The appellant [X.] , born in 1950, has been building up a sole proprietorship specialised in IT architecture since 1989. After an accident in 1997, he suffered from long-lasting health problems and received, in addition to a pension under the AIA, a full IV pension from 1999 onwards. From 1995 to 2001, the sole proprietorship generated average losses of around CHF 43,000. The Administrative Court of the Canton of Appenzell Ausserrhoden denied the existence of self-employment and did not allow the deduction of the losses.

Considerations

The Federal Supreme Court confirms the decision of the Administrative Court. While self-employment does not necessarily require a visible market presence, participation in economic activity must be proven. However, the appellant was unable to provide any fee income from third parties over the years, which suggests that he pursued his activity out of private interest rather than for profit. Since the required profit motive is thus lacking, the losses cannot be deducted as business-related expenses.

The…