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The Taxpayer's History of Income and Losses With Respect to
the Activity. Petitioners' yacht-related activity generated
losses over a period of 5 years, which petitioners used to offset
taxable income from other sources. A record of substantial
losses over many years and the unlikelihood of achieving a
profitable operation are important factors bearing on the
taxpayer's intention regarding the activity. Cannon v.
Commissioner, 949 F.2d 345, 352 (10th Cir. 1991), affg. T.C.
Memo. 1990-148; Golanty v. Commissioner, 72 T.C. at 426-427. The
presence of such losses in the formative years of a business is
not inconsistent with an intent to achieve a later profitable
level of operation; however, the goal must be to realize a profit
on the entire operation, which presupposes sufficient future net
earnings from the activity to recoup the losses. Golanty v.
Commissioner, supra at 427.
In the present case, petitioners reported operating losses
over 5 years totaling $496,827. Petitioners contend that the
losses were attributable to unforeseen circumstances that were
beyond petitioners' control. Sec. 1.183-2(b)(6), Income Tax
Regs. Generally, losses sustained because of unforeseen
circumstances beyond the control of the taxpayer do not
necessarily indicate that the activity was not engaged in for
profit. Engdahl v. Commissioner, 72 T.C. 659, 669 (1979); sec.
1.183-2(b)(6), Income Tax Regs. However, the overall picture
reveals that petitioners did not operate an activity for profit
during the taxable years at issue, 1990 and 1991. They made no
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