That's not actually what the IRS is saying. The point of the business/hobby distinction is to prevent individual taxpayers from deducting losses for hobby acti

That's not actually what the IRS is saying. The point of the business/hobby distinction is to prevent individual taxpayers from deducting losses for hobby activities. If the activity is profitable, the taxpayer gets taxed, so the IRS couldn't care less whether its a hobby or an actual business. Attempts to generate profit by incorporated entities are, by definition, business activities. For pass-through entities like LLCs and S-Corps, this means that they are treated as business activities for purposes of taxing the managing/active investors. The activities don't have to have a reasonable chance of being profitable; otherwise, speculative ventures would never be treated as businesses. The key test of whether something is a business activity is whether it generates revenue and whether the taxpayer puts effort into generating revenue. For example: painting is normally a hobby, unless the painter also puts effort into selling those paintings.