Steven F. and Kathryn A. Dawson - Page 10

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          V.  Taxpayers' Financial Status                                             
               The fact that the taxpayer does not have substantial income            
          or capital from sources other than the activity may indicate that           
          the activity is engaged in for profit.  Sec. 1.183-2(b)(8),                 
          Income Tax Regs.  Petitioners' financial status strongly suggests           
          that petitioners engaged in the Activity for profit.  In 1988,              
          petitioners earned wage income of $33,008 and net income of                 
          $16,334 from the carpet cleaning business.  In 1989, Mr. Dawson             
          earned wage income of $28,618 from his job at the railroad and              
          net income of $7,803 from the carpet cleaning business.  To earn            
          this income, Mr. Dawson worked long hours at two arduous jobs.              
          Mr. Dawson's testimony indicated that he was a shrewd,                      
          hardworking, diligent, and levelheaded businessman.  We do not              
          believe that he would squander his hard-earned money on an                  
          extravagant hobby.                                                          
          VI.  Amount of Profits                                                      
               The amount of profits earned in the activity, when compared            
          to the amount of losses incurred, the amount of the investment,             
          and the value of the assets in use, may indicate a profit                   
          objective.  Sec. 1.183-2(b)(7), Income Tax Regs.  Petitioners did           
          not earn a profit on the Activity.  The opportunity to earn                 
          substantial profits in a highly speculative venture, however, is            
          ordinarily sufficient to indicate that the activity is engaged in           
          for profit even though only losses are produced.  Id.  Further,             






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