- 15 -
profit. From 1982 through 1992, Bendabout showed a profit only
in 1986, and that was due to a depreciation recapture adjustment.
Respondent notes that each year since 1986, Bendabout generated
roughly the same amount of income, while its expenses more than
doubled from 1986 to 1992. Moreover, respondent contends that
petitioners will never recoup their losses, because Bendabout
liquidated its thoroughbred operation in 1993.
Respondent's reliance on Bessenyey v. Commissioner is
misplaced. Petitioners' losses were incurred during the
formative years of Bendabout's operation and were due to
unforeseen events which were beyond petitioners' control. On
brief, respondent conceded that 7 years is the minimum startup
period for this thoroughbred breeding business; it takes at least
2 years from the time of purchasing a mare to realize any income
on the investment and if the mare loses the first foal, or is
barren, petitioners will not generate any income for an even
longer period. Petitioners inherited Bendabout in 1985, and they
started a program of acquiring brood mares and stallions for
Bendabout's thoroughbred program during the years in issue.
Thus, the losses were incurred during the startup period of
petitioners' activity. See Enghdahl v. Commissioner, 72 T.C.
supra at 669.
More importantly, losses sustained because of unforeseen or
fortuitous circumstances beyond petitioners' control do not
indicate that the activity was not engaged in for profit.
Page: Previous 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 NextLast modified: May 25, 2011