Jerry always had a passion for jumping off high objects since he was a toddler, thus it was no surprise when he started a bungee jumping business about 5 years ago, which he named jerry’s giant jumps company. he never filed any official paperwork for the company since it started out as a hobby. given his upcoming audit, Jerry decided to clean up as much of his sloppy business practices as possible. therefore, he began the online application process for an IRS employer identification number (EIN). the application required the business address: 1858 bungee drop lane, terrapin falls, MD 20783 and jerry’s social security number 100-00-0001. jerry did not intend to put Debbie's name or social security number 100-00-0002, on the application since he owned 100% of the company. jerry was certain he was using a cash basis accounting method but unsure of which business form to select on the ein application, so he could not finalize the ein application process. wisely, Jerry decided it was time for an accountant’s perspective. at the beginning of february, jerry came to the cpa firm with a box of tax documents and a list of questions. jerry’s previous accountant had retired from the firm, so it was no surprise when a senior partner introduced the two of you and assigned you as Jerry's new accountant. in your role as jerry’s accountant, your first step is to conduct tax research to answer all of his questions and provide jerry with much needed guidance. business vs. hobby: review the internal revenue code rules on operating a business versus a hobby to determine whether jerry’s jiant jumps is a business or a hobby.

Prepare a transcript of a telephone conversation you plan to have with jerry describing the consequences of your determination. Ask the senior partner to review your notes before calling jerry.