I've done it in the past, been audited and came out of it fine. Spent 45 minutes in the IRS office and they said "OK, see you later." Granted, that was a number of years ago, things may have changed some. The auditor began by asking me questions not related to money, but more like if you were applying for a job in a race shop. It was obvious she wanted to find out if I was smart enough, experienced enough, serious about doing it for profit, and what things I was doing, besides hanging out at the track, to actually generate income. I was able to answer her questions, in detail and without hesitation, about the importance of racing to my business, the activities I was involved in and the potential to generate income as a result of being at the race track. And none of my answers were smoke and mirrors or BS.

Having a legitimate racing related business (speed shop, chassis fab, parts sales, engine builder) is a huge plus. Traveling to places where you can make money and generate business is a plus. Actively seeking marketing partners is a plus. Promoting your business and demonstrating that racing is beneficial and has a legitimate purpose is a plus. Going to the local po-dunk track to hangout, bar-b-que and race for $500 on Sundays is not what they are looking for.

You must have a good CPA, preferably one who has experience with racing businesses, you must keep good records and you have to be able to show that it is a legitimate business or part of a larger legitimate business with the potential to make money. Otherwise, don't do it.