James J. Lencke and Janene B. Lencke - Page 22

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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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