Geraldine H. Pearson - Page 16

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               7.  Taxpayer's Expectation of Appreciation in Value                    
               Whether the taxpayer expects the property used in the                  
          activity to appreciate in value is considered in deciding whether           
          the taxpayer has a profit objective.  Faulconer v. Commissioner,            
          748 F.2d 890, 898-899 (4th Cir. 1984), revg. T.C. Memo. 1983-165;           
          see Lemmen v. Commissioner, 77 T.C. 1326, 1341-1342, 1342-1343              
          n.22 (1981).  A taxpayer may intend to derive a profit from an              
          activity, even if the activity is not currently profitable, if              
          the taxpayer expects income from the activity and appreciation              
          of the assets used in the activity to exceed the expenses of the            
          activity.  Sec. 1.183-2(b)(4), Income Tax Regs.                             
               Petitioner contends that, counting appreciation in the value           
          of her land, she has shown that she had an actual and honest                
          profit objective.  We disagree because she has not proven that              
          the appreciation in the value of her farm plus farm income                  
          exceeded her farm losses or that she expected it to do so.                  
               Petitioner submitted, at best, inconclusive evidence about             
          the value of the 100 acres of land she bought in 1961 for                   
               Petitioner offered a letter from A.J. Caragol, Sr., an                 
          associate broker with the residential real estate department of             
          Coldwell Banker (Caragol letter).  The Caragol letter stated that           
          the fair market value of petitioner's farm is $555,000.  The                
          letter is not dated, it does not state the fair market value of             
          petitioner's parents' land when she received it, it does not                
          state how the land was appraised, and it does not distinguish               

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