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in determining whether the taxpayer entered into the activity for
profit, a small chance of making a large profit may indicate the
requisite profit objective. Sec. 1.183-2(a), Income Tax Regs.
According to the regulations, "it may be found that an investor
in a wildcat oil well who incurs very substantial expenditures is
in the venture for profit even though the expectation of a profit
might be considered unreasonable." Id.
Petitioners' family was one of modest means. Petitioners
believed that the prospect of producing a champion horse that
could generate hundreds of thousands of dollars in revenue and
correspondingly large profits seemed to be well worth the risks
involved. In essence, the Activity was petitioners' "wildcat oil
well". Petitioners actually and honestly believed that if Hot
Twist were successful in horse shows, future earnings and profits
would be substantial. Mr. Barton confirmed that Hot Twist had
the potential to be very successful. We conclude that
petitioners' expectation of future profits is consistent with the
existence of a profit objective.
VII. History of Income and Losses
A taxpayer's history of income, losses, and occasional
profits with respect to an activity may indicate the presence or
absence of a profit objective. Sec. 1.183-2(b)(6), Income Tax
Regs. Respondent contends that, because petitioners have
incurred losses on their horses in each year, they did not have
the requisite profit objective. We disagree.
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