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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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