- 22 - A taxpayer who devotes much of his personal time and effort to carrying on an activity, particularly if the activity does not have substantial personal or recreational aspects, may have an intention to derive a profit. Sec. 1.183-2(b)(3), Income Tax Regs. Here, however, the record shows that petitioners failed to devote much of their personal time and effort to Red Caboose during the years in issue. The relatively small amounts of gross receipts reported by petitioners from Red Caboose during 1990, 1991, and 1992, which were $1,100, $5,271, and $13,012, respectively, and the relatively few model railroad shows they attended during 1991, 1992, and 1993, which were 4, 13, and 24, respectively, show that petitioners did not devote much of their personal time and effort to Red Caboose, particularly in light of the recreational aspects involved in its operation. Therefore, based on the testimonial and documentary evidence in this record, we think petitioners did not devote sufficient personal time and effort to Red Caboose during 1990, 1991, and 1992 to establish that they engaged in their model railroad activity with an actual and honest objective of making a profit. In our opinion petitioners' primary motivation in operating Red Caboose was other than to earn a profit. Respondent suggests that their motive was to use the losses it generated to offset income they received during 1990, 1991, and 1992. This seems probable. Substantial income from sources other than thePage: Previous 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 Next
Last modified: May 25, 2011