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As we have pointed out in numerous opinions, deductions are
a matter of legislative grace. A taxpayer who claims entitlement
to a deduction must identify the specific statute that allows for
the deduction and prove that all of the requirements of that
statute have been satisfied. New Colonial Ice Co. v. Helvering,
292 U.S. 435, 440 (1934).
Generally, section 165(a) allows as a deduction any loss
sustained during the taxable year and not compensated for by
insurance or otherwise. Disregarding certain parts of section
165(c) that have no application to this case, section 165(c)(2)
provides that in the case of an individual, the deduction is
limited to losses incurred in any transaction entered into for
profit. In this case, we consider the relevant "transaction" to
be the production of the foal, Daisy.
To be entitled to a loss under section 165(c)(2),
petitioner's primary motive for entering into the transaction
must have been to make a profit. Fox v. Commissioner, 82 T.C.
1001, 1021 (1984). By "primary," we mean "of first importance"
or "principally". See Malat v. Riddell, 383 U.S. 569, 572
(1966); Fox v. Commissioner, supra; Surloff v. Commissioner, 81
T.C. 210, 233 (1983). Although profit need not be the sole
motive, if we find that petitioner's intent to make a profit was
merely incidental, petitioners will not be entitled to the loss
under section 165(c)(2).
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