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Personal Pleasure or Recreation
The absence of personal pleasure or recreation relating to
the activity in question may indicate the presence of a profit
motive. Sec. 1.183-2(b)(9), Income Tax Regs. As noted earlier
in this opinion, we are convinced that petitioner's horse
activity contained significant recreational aspects that gave
rise to many personal pleasures. We find that the personal
pleasure derived from petitioner's horse activity was the
principal factor motivating his decision to enter into and carry
on such activity. Accordingly, we find that this factor favors
respondent.
Having considered the facts and circumstances of this case
in light of the factors set forth in section 1.183-2(b), Income
Tax Regs., we conclude that petitioner did not engage in his
horse activity with an actual and honest objective of making a
profit within the meaning of section 183.
Issue 2. Addition to Tax, Sec. 6661
Respondent determined that petitioners are liable for the
addition to tax pursuant to section 6661 for taxable year 1988
due to a substantial understatement of income tax. This
determination is benefited by a presumption of correctness. Rule
142(a).
The addition to tax is 25 percent of any underpayment
attributable to a substantial understatement. Sec. 6661(a). A
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