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proving their contents, and petitioner testified about them only
in the most vague and general fashion.
Abandonment of unprofitable methods, a change in operating
methods, or the adoption of new techniques to improve
profitability may indicate a profit objective. Sec. 1.183-
2(b)(1), Income Tax Regs. Respondent argues that petitioner did
not reduce expenses, while petitioner claims to have adopted
methods designed to reduce expenses. For instance, after
analyzing the summaries prepared, petitioner says he realized
that he should expand his operations to improve profitability.
Petitioner added cattle, exotic goat, and guest ranch operations,
he hired Mr. White to live on the ranch and act as foreman, and
he purchased land for hay production. The hay operation was
designed to reduce expenses, while the others were designed to
increase revenue. Even if the expenditures petitioners sought to
reduce were in fact reduced, the ranch would not have become
profitable. Two of the most significant expenses reported each
year were mortgage interest and depreciation. Nothing short of
significant revenue increases would have made the venture
profitable in light of these significant expenses, and though the
added activities may have raised revenue slightly, they also
caused an increase in expenses. Although we believe that
petitioner had a business plan to expand operations, the facts
indicate that such expansion did not constitute a plausible plan
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