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horses. Obviously, petitioners’ financial status permits them to
engage in an activity reporting large losses over decades. The
financial status of the taxpayers is an appropriate inquiry under
the regulations, section 1.183-2(b)(8), Income Tax Regs., and in
the case law. See Golanty v. Commissioner, 72 T.C. at 428.
Petitioners’ level of income permitted them to continue the horse
activity without a profit. If they had regarded the activity as
a business, they would have focused more on the financial aspects
and ways to cut their losses. Only their other income allowed
their continued pursuit of losing operations.
Petitioners argue that many years of losses are necessary
to make a profit in the horse breeding and racing industry. They
cite Duley v. Commissioner, T.C. Memo. 1981-246, for the
proposition that the opportunity to earn a profit in a highly
speculative venture is sufficient to demonstrate profit motive.
Petitioner claims that he bred Quinton’s Fan Club, a horse that
sold as a yearling for $7,500 and, after the sale, went on to
become a world record holder and stakes winner of over $100,000.
No evidence was presented regarding petitioner’s reliance on a
professional trainer or petitioner’s own ability to train and run
a racehorse whose winnings would provide him with a realistic
chance of recovering the losses incurred in prior years.
Petitioners contend that certain assets that have
appreciated in value over the years should be considered when
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