IRS does not buy that - 98% of what Fred bought was for re-sale. Not a hobby - its a business.

Not necessarily. My understanding is that the key is if you are losing money or making a profit. If you are losing money (after deducting allowable expenses such as mileage, fees, postage, etc.) by driving and buying 49 chips to sell on Ebay it is a "hobby." If you are making a profit it is a business. Doesn't matter if you are selling 2 chips or 200, what matters is did you make a profit after expenses?