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As observed by the Court of Appeals for the Second Circuit in
Ranciato v. Commissioner, 52 F.3d at 25-26, the legislative
history to section 183 shows a particular concern for “wealthy
individuals” trying to shelter their income with unrelated paper
losses. The Court of Appeals also observed that petitioner is a
“solid middle-class wage earner” with “actual” losses. Id. The
Court of Appeals noted that this Court’s Memorandum Opinion in
Ranciato I did not discuss these factors and that they are
indicative of a profit intent. Id. at 27.
We agree with the Court of Appeals for the Second Circuit
that the wealth of an individual is a fact to consider in
determining the applicability of section 183. We also agree with
the Court of Appeals that another fact to consider is whether an
activity is entered into primarily to create paper losses to
shelter unrelated income. We do not believe, however, as implied
by petitioner in his brief, that section 183 applies only to
wealthy individuals who engage in financially unprofitable
activities to create “paper” losses that may be offset against
unrelated income.
Turning to the facts at hand, we find that petitioner
reported significant taxable income during the subject years from
sources other than the store. His ability to earn this income
let him finance his store, and it allowed him to use the store's
losses to reduce significantly his income tax liability for each
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