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Petitioner did not undertake a basic investigation of the
factors that would affect his store’s profitability. Petitioner
did not establish that he was an expert in the store’s business,
or that he prepared to enter its business through study of its
practices or by consultation with experts. Petitioner did not
establish that his mother, who did most of the store’s work, was
motivated by business objectives.
This factor supports respondent's determination.
3. Time and Effort Spent in Conducting the Activity
We consider the time and effort spent by petitioner in
operating his store. Sec. 1.183-2(b)(3), Income Tax Regs. The
fact that a taxpayer devotes much of his or her own time to an
activity may indicate a profit intent, if the activity does not
have a substantial element of recreation. The failure of a
taxpayer to devote substantial time to an activity may weigh
against a profit motive, unless, for example, the taxpayer
employs capable personnel to conduct the activity in his or her
stead. Employing capable personnel shows a profit intent. Id.
In Ranciato I, we found that the record did not show that
petitioner spent significant time at the store. On appeal, the
Court of Appeals for the Second Circuit stated that "We think it
relevant in determining * * * [petitioner's] intent * * * that
his mother devoted substantial time to * * * [the store]."
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