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carefully reviewed monthly reports and held his managers
accountable for variances from the business plan and budget
A change of operating methods, adoption of new techniques,
or abandonment of unprofitable methods is further evidence of
petitioners' profit motive. Eldridge v. Commissioner, T.C. Memo.
1995-384; sec. 1.183-2(b)(1), Income Tax Regs. Here, petitioner
implemented numerous changes in operation to try to improve
profitability.
When petitioner acquired Flying H, he began his operation
with 20 longhorn cattle. Thereafter, he and his advisers
determined that the longhorn were not profitable and decided not
to expand that aspect of the business. Moreover, in an effort to
cut losses, they put the longhorn to work as lead cattle.
In 1987, Dr. Haaland determined that operating under rate-
of-gain contracts was ruining the pastures' potential for long-
term profits and recommended that petitioner take over the direct
management of the ranch. Petitioner, following Dr. Haaland's
advice, cut back on grazing, which gave the pastures a chance to
recover. In the short-term, however, this meant that Flying H
was not operating at its maximum cattle capacity, and therefore
it was not maximizing its short-term earning potential.
In 1993, after running a stocker operation for several
years, petitioner and his advisers determined that it would be
more profitable to combine the stocker operation with a calf-cow
operation, so that in 1995 it ran 1,050 stockers and 265 cows.
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