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Income Tax Regs.; cf. Dunn v. Commissioner, 70 T.C. 715, 720
(1978), affd. 615 F.2d 578 (2d Cir. 1980).
Petitioners contend that the losses from the horse-breeding
activity are properly deductible because the activity was profit
motivated. Conversely, respondent asserts that the activity was
not engaged in for profit. We find that Mr. Morley engaged in
the horse-breeding activity with the primary purpose and dominant
hope and intent of realizing a profit.
A. Manner in Which the Activity is Conducted
Relevant factors in determining profit motive include
whether the taxpayer: Maintained complete and accurate books and
records, conducted the activity in a manner substantially similar
to other comparable businesses which are profitable, and
attempted changes in order to improve profitability. Sec. 1.183-
2(b)(1), Income Tax Regs.
Respondent argues that Mr. Morley failed to operate his
horse-breeding activity in a businesslike manner. Mr. Morley
kept extensive records. In managing the farm, Mr. Morley used
business documents. His books and records for the farm included
teasing and breeding records on his horses, self-generated
pedigrees for each of his horses, and veterinarian and other
types of health records on his horses. He insured the horses
that he purchased under contract.
Respondent also points to the fact that Mr. Morley did not
create or follow a written business plan, and did not prepare any
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