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If you lose money for 3 years out of the last 5, the IRS will put the onus on you to prove that your business is an actual business and not a hobby. If you're operating at Amazon scale and have lawyers and accountants on staff, maybe being audited isn't a big deal. But if you're a one person operation I imagine it's a lot more stressful

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I'm curious how the IRS applies this to startups that may not be profitable until well after IPO.

For businesses that don't make money in their first 3 years, there's some more indepth criteria but they're less cut and dry than the "are you usually profitable" rule

For example do you put a substantial amount of your own time into the business, is it normal to have large startup costs before coming profitable in your field, is the business your primary livelihood or just a side project,etc

I wrote "barely profitable", it makes a few dolars a year. If company has no money, it can not pay for anything. And it is outside USA, what IRS thinks is irrelevant. Some more paranoid people even start new company every year. It takes like $50 and 20 minutes.

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