Barry S. and Yvonne C. Hillman - Page 20




                                        - 20 -                                         

          rather than recollected as a good faith estimate.6  Moreover, to             
          the extent Dr. Hillman attended horse shows and otherwise oversaw            
          the show horse activities, we believe the recreational aspects of            
          these activities are manifest.  All or most of the onerous labor             
          required in maintaining the horses--e.g., mucking stalls,                    
          feeding, etc.--was hired out and deducted as a business expense.             
               We do not believe that the time and the effort which                    
          petitioners have shown they dedicated to the show horse activity,            
          particularly given its recreational aspects, support an inference            
          that a profit motive existed.                                                
          Expectation That Assets May Appreciate                                       
               An expectation that assets used in the activity will                    
          appreciate in value may indicate a profit objective.  See sec.               
          1.183-2(b)(4), Income Tax Regs.  A profit motive may be inferred             
          where there are no operating profits, so long as the appreciation            
          in value of the activity’s assets exceeds the operating expenses.            
          See id.   The appreciation in value must be sufficient, however,             
          to recoup the accumulated losses of prior years.  See Golanty v.             
          Commissioner, supra at 427-428; Bessenyey v. Commissioner, 45                


               6  Treasury regulations provide that an individual taxpayer             
          will be deemed to have “materially participated” in an activity              
          (which precludes a finding that the activity was a “passive                  
          activity” for purposes of sec. 469) if the taxpayer participates             
          in the activity for more than 500 hours during the taxable year.             
          See sec. 1.469-5T(a)(1), Temporary Income Tax Regs., 53 Fed. Reg.            
          5725 (Feb. 25, 1988).                                                        





Page:  Previous  10  11  12  13  14  15  16  17  18  19  20  21  22  23  24  25  26  27  28  29  Next

Last modified: May 25, 2011