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Although the petitioners have sustained substantial
current losses, they still hope, in the long run, to
realize a profit because the fair market value of the lodge
has appreciated * * *. The appreciation in value may, or
may not in fact, offset the aggregate operating losses, but
the prospect of realizing a profit on the sale of the lodge
was bona fide when * * * [the taxpayers] decided to invest
in the lodge and is sufficient to explain * * * [their]
willingness to continue to sustain operating losses. Sec.
1.183-2(b)(4), Income Tax Regs. Moreover, the out-of-
pocket expenses graphically demonstrate that part of the
losses were economic losses and not merely tax losses.
Most importantly, the * * * [taxpayers] have
established that they never used the lodge for their own
personal enjoyment. Only in connection with the management
of the lodge did the * * * [taxpayers] stay in it
overnight. At all times, the lodge was either rented,
available for rent, or being prepared to be rented. Thus,
it offered them no recreational benefits.
See also St. Germain v. Commissioner, T.C. Memo. 1959-73,
involving the for-profit operation of a timber farm.
On brief, respondent appears to concede that upon purchase
of the timber farm in the spring of 1985, petitioners had the
objective of owning and operating the timber farm for profit and
as a business. Respondent, however, goes on to argue that
petitioners "abandoned these plans" during 1985 because of
falling timber prices. We disagree. Nothing suggests that
petitioners ever abandoned their profit objective with regard to
the timber farm. In 1986, 1987, and 1988, because of an
unexpected decline in timber prices, petitioners simply deferred
cutting and selling the timber.
Respondent also argues that the startup nature of
petitioners' timber farm, during the years before us, is
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