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Expectation that Assets will Appreciate
An expectation that assets used in the activity in question
may appreciate in value may also be an indication of the
taxpayer's motive with respect to such activity. Sec. 1.183-
2(b)(4), Income Tax Regs. Petitioner contends that a principal
factor underlying his motivation for engaging in his horse
activity was the expectation that he would experience
appreciation in the value of his horses. We recognize that
appreciation in the horse industry often requires the passage of
many years and is frequently dependent upon on a successful
breeding and training program. It is not enough, however, that
petitioner maintained the objective that his horse activity would
eventually become profitable as a result of appreciation in the
value of his horses. It is necessary that the objective be to
realize a profit on the entire operation. Bessenyey v.
Commissioner, 45 T.C. 261, 274 (1965), affd. 379 F.2d 252 (2d
Cir. 1967). This presupposes not only future net earnings but
also future net earnings sufficient to recoup the losses which
have been sustained in prior years. Id. Petitioner failed to
produce credible evidence that would suggest that his activity
had any realistic chance of recovering the enormous losses
previously incurred.
In light of this record, we are not convinced that
petitioner maintained a good faith belief that his horses would
appreciate over time and that such appreciation would eventually
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