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fire, disease, theft). A series of years of net income, on the
other hand, is “strong evidence” that an activity is engaged in
for profit. Id. Indeed, an activity that is not horse-related
is presumed to be engaged in for profit if the activity is
profitable in at least 2 of 5 consecutive years. Sec. 183(d).**
Horse-related activities are presumed to be engaged in for profit
when the activity is profitable for at least 2 of 7 consecutive
years. Id.
Petitioner claimed net losses of $27,377, $27,795, and
$20,976 from the store on his 1985, 1986, and 1987 Federal income
tax returns, respectively. These losses offset gross income of
$66,942, $33,488, and $44,221. Petitioner has not established
that any of these losses was due to unforeseen or fortuitous
circumstances beyond his control.
The Court of Appeals for the Second Circuit observed that
our Memorandum Opinion in Ranciato I did not discuss the
profitable chapter of the history of petitioner’s store. In
Ranciato I, we found that the store “showed a profit in its early
years”. We did not regard this finding, however, as a decisive
factor in petitioner’s favor. First, we know that petitioner's
store reaped a profit in its "early years", but we do not know
the specific years in which the store had a profit, or the
** This standard was changed to 3 out of 5 years for
taxable years beginning after Dec. 31, 1986.
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