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b. Petitioner’s Motive for Operating Store
The Court of Appeals for the Second Circuit questioned
petitioner’s motive for operating his store. Respondent claims
that petitioner operated his store as a valued family project.
As indicated above, we agree. Petitioner and his parents started
the store when he was approximately 18 years old. The store’s
only employees during the relevant years were petitioner, his
wife, his mother, and his two children. Except for his son,
Dustin, who was paid $1,470 during 1985, none of the other family
members were paid for working at the store. These facts,
combined with the pleasure that many derive from raising pets,
suggest strongly that the store personally benefited petitioner's
family, thereby motivating him to keep it open despite its
losses.
11. Conclusion
Based on our discussion above, we conclude that petitioner
operated his store without an "actual and honest" objective of
making a profit.***
*** We have also reconsidered whether petitioner is liable
for the additions to tax determined by respondent under secs.
6651(a)(1), 6653(a)(1) and (2), 6653(a)(1)(A) and (B), and 6661,
and whether he is liable for the increased rate of interest under
sec. 6621. In light of the Court of Appeals for the Second
Circuit’s opinion, we conclude that petitioner’s reporting
position with respect to his store was not unreasonable.
Accordingly, we hold that he is not liable for the additions to
tax for negligence under sec. 6653(a)(1) and (2) (for 1985) and
sec. 6653(a)(1)(A) and (B) (for 1986 and 1987). With respect to
the other two additions to tax, and the increased rate of
interest, we adhere to our holdings at T.C. Memo. 1993-536. The
(continued...)
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