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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 the
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