John E. and Vicki D. Morrissey - Page 19

                                        -18-                                          
          anticipated a profit of $13,040 for 1999.  Petitioner also                  
          decided to liquidate in 2000 and therefore minimized costs and              
          entered fewer races.  Petitioner has shown that he could earn               
          enough money in a year to cover his expenses; he accomplished               
          that in 1998.                                                               
               8.   The Financial Status of the Taxpayer                              
               We next examine petitioner’s financial status.  If a                   
          taxpayer does not have substantial income or capital from sources           
          other than the activity in question, it may indicate that the               
          taxpayer engages in the activity for profit.  Sec. 1.183-2(b)(8),           
          Income Tax Regs.  Conversely, substantial income from sources               
          other than the activity, especially if the losses generate large            
          tax benefits, may indicate that the taxpayer is not conducting              
          the activity for profit.  Id.  Those with substantial income from           
          other sources have a much greater tax incentive to incur large              
          expenditures in a hobby type of business.  Jackson v.                       
          Commissioner, 59 T.C. 312, 317 (1972).                                      
               During the years at issue, petitioners’ financial status was           
          stable.  Petitioner earned a good salary from the bank but not in           
          six figures.  Both petitioners used some of their income from               
          their full-time jobs at the bank to help support the drag racing            
          activity during the startup phase.  While petitioners’ financial            
          status was stable, their income was not so substantial that it              
          would indicate a great tax incentive to incur large losses from             
          the drag racing activity.                                                   






Page:  Previous  2  3  4  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  21  Next

Last modified: May 25, 2011