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control, we conclude that such losses are not an indication that
the activity is not engaged in for profit.
Section 1.183-2(b)(8), Income Tax Regs., provides that
The fact that the taxpayer does not have substantial
income or capital from sources other than the activity
may indicate that an activity is engaged in for profit.
Substantial income from sources other than the activity
(particularly if the losses from the activity generate
substantial tax benefits) may indicate that the
activity is not engaged in for profit especially if
there are personal or recreational elements involved.
Petitioners argue that the fact that they spent a
substantial amount of their gross income and all of their
inheritance moneys on the horse activity is strong evidence that
they are engaged in it for profit. Petitioners argue that they
"are sacrificing a higher living standard today for the
expectation of enjoying substantial profits in the future."
Respondent argues that petitioners' substantial income from
other sources "has allowed them to continue funding their horse
operation despite the heavy losses". Respondent argues that
petitioners' activity "is sustainable, even on a current basis,
only through outside funds."
In the instant case, petitioners have invested in their
horse activity, since 1988, all of the inheritances that they
received, and, during each of the years in issue, a large
percentage of their gross income, which indicates, in the
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