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an activity was conducted in a manner substantially similar to
comparable businesses that are profitable, and where changes were
attempted in order to improve profitability, a profit motive may
be indicated. Engdahl v. Commissioner, 72 T.C. 659, 666 (1979);
sec. 1.183-2(b)(1), Income Tax Regs.
There is little evidence that petitioners operated their
farm with the expectation of profitability. Petitioner husband
argues that he has maintained records for his activities.
Petitioner husband kept records consisting of receipts that were
segregated in folders according to each Schedule F line item.
Petitioners did not maintain a separate checking account or a
system of ledgers which would have provided a basis for
ascertaining revenue and expenses. Significantly, there is
nothing in the record showing that petitioners conducted an
analysis or investigation of the profitability of farming in
their area. Finally, and more significantly, petitioners did not
prepare an analysis of the revenues and expenses that their
property could achieve with more livestock (either cattle or
sheep) to determine whether it could then be operated in a
profitable manner.
Petitioners did not demonstrate that the manner in which
they conducted the farming operation was reasonably calculated to
produce a profitable return. Although petitioners reported their
farming activity as "General Livestock", there was no inventory
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