James C. Vallette and Arleen R. Vallette - Page 8

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          reverse the tide, adds further support to our belief that                   
          petitioners were, at best, indifferent as to whether the losing             
          trend could be reversed.  See Ranciato v. Commissioner, supra at            
               This factor favors respondent's determination.                         
               2.  Expertise of taxpayers                                             
               We consider the expertise of petitioners with respect to               
          their activity.  See sec. 1.183-2(b)(2), Income Tax Regs.  A                
          taxpayer's expertise, research, and study of an activity, as well           
          as his or her consultation with experts, is indicative of a                 
          profit intent with respect thereto.  Id.  In preparing for an               
          activity, a taxpayer need not make a formal market study, but he            
          or she should undertake a basic investigation of the factors that           
          would affect the activity’s profitability.  Underwood v.                    
          Commissioner, T.C. Memo. 1989-625; Burger v. Commissioner, T.C.             
          Memo. 1985-523, affd. 809 F.2d 355 (7th Cir. 1987).                         
               Mr. Vallette’s prior experiences with cattle made him                  
          knowledgeable on the subject.  The mere fact that he was skilled            
          in the cattle industry, however, does not mean that petitioners             
          began or continued their breeding activity for profit.  Our                 
          careful review of this factor suggests that the weight of                   
          Mr. Vallette’s expertise and hands-on experience was offset by              
          petitioners’ lack of knowledge on the economics of the cattle               
          breeding industry.  Among other things, the record does not                 
          suggest that petitioners:  (1) Sought any professional advice on            

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