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devote substantial time to the Activity is not inconsistent with
the existence of a profit objective.
IV. Expectation That Assets May Appreciate
The appreciation of assets is to be considered in
determining whether a taxpayer intended to derive a profit from
his activity. Sec. 1.183-2(b)(4), Income Tax Regs. Respondent
contends that "petitioners' indifference to the present and
future value of their horses weighs against a finding of profit
motive." Respondent's contention, however, is contrary to the
facts.
As Hot Twist became better known and trained, petitioners
believed that: (1) Hot Twist could be bred with Kate Dillon and
Dynamic King Bar and the sale of the foals would produce revenue;
(2) Hot Twist could participate in national-level competitions,
where gate prizes often reached $100,000; and (3) other horse
owners would seek to breed their mares with Hot Twist. According
to Mr. Barton, petitioners could make approximately $1,000 per
foal by breeding Hot Twist. Mr. Dawson believed that Hot Twist
could breed with more than 100 mares in a single year.
Petitioners also expected to make money on "mare care" (i.e., a
per diem amount for boarding and feeding mares brought to
petitioners for breeding). All of these factors would have the
effect of increasing the value of petitioners' horses.
We conclude that petitioners sincerely and reasonably
believed that their horses would appreciate in value.
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