MA705S.1

Determine the estimated gross and net earnings of the trade or business for the current tax year.

• Use the most recent business tax return for the tax year prior to the current application or redetermination. Use the return to determine the net earnings from self-employment and validity of the trade or business.

• If a current tax return is not available, obtain a copy of the latest available tax return.

If the trade or business has operated a year or less, and the provisions below have been followed to determine whether a trade or business actually exists, obtain other appropriate evidence from the customer to verify the gross and net earnings of the trade or business for the current tax year.

Consider the following criteria when determining the existence of a trade or business. Although a single factor is not sufficient to base a determination that a trade or business does exist, neither must all the factors be present for a trade or business to exist.

• The good faith intention of making a profit or producing income;

• Continuity of operations, repetition of transactions, or regularity of activities;

• Regular occupation;

• Holding out to others as being engaged in the selling of goods or services.

Investigate the answers to the following questions when gathering information to help determine the existence of a trade or business. Adapt these questions to fit the situation; they are to be used as a tool to help make the determination whether a trade or business exists but not as criteria which must be met in order for a trade or business to exist.

• Has the IRS issued a ruling to the customer regarding the existence of a trade or business?

• What documents has the customer executed to support his claim that a trade or business exists (ex., SS-4, Schedule C, tax reports or returns, etc.)?

• Why does the customer feel the activities constitute a trade or business?

• What business firms or other organizations does the customer deal with as a trade or business (ex., provides services or products to, purchases goods or materials from)?

• Are there records in the AZ Corporation Commission database listing the business as a corporation in good standing?

• How was income reported on the customer's tax return?

• Are there business licenses, registrations, permits?

• Where is the place of business?

• Are there indications of availability to others for transacting business?

• Is the business being advertised?

• Is the customer a member of a business or trade association?

• Is there other pertinent information to consider?