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have engaged in the activity for profit. Sec. 1.183-2(b)(3),
Income Tax Regs. While withdrawal from an occupation to spend
more time on the activity suggests a profit motive, taxpayers who
spend limited amounts of time on an activity may nevertheless
possess the requisite profit motive if they use the services of
qualified persons. Thus, the fact the petitioners were employed
full-time as registered nurses does not necessarily preclude a
finding that they bred horses with a profit motive. Petitioners
credibly maintain that they and their daughter have averaged a
total of 40 to 60 hours per week on the care and training of
their horses, as well as on the maintenance of Silk Oak. Silk
Oak is a modest ranch, and we believe that petitioners performed
much of the necessary and unpleasant labor themselves.
Therefore, despite petitioners' full-time employment as
registered nurse supervisors during the years in issue, we find
that this factor favors petitioners.
4. The Expectation That Assets Used in the Activity May
Appreciate in Value
The term "profit" may contemplate appreciation in the value
of assets, including land, used in the activity. Sec. 1.183-
2(b)(4), Income Tax Regs. Petitioners argue that the increased
value of the property where Silk Oak is located should be
considered to offset past losses. In this instance, however, the
appreciation in value of Silk Oak must derive from petitioners'
ranching activities, rather than from independent factors.
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Last modified: May 25, 2011