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deficiency, respondent disallowed the losses associated with the
dog-breeding activity as not engaged in for profit.
OPINION
Issue 1. Section 183
Initially we must decide whether petitioners’ dog-breeding
activity was not engaged in for profit. Section 183(a) provides
that individual taxpayers will not be allowed deductions which
are attributable to an "activity * * * not engaged in for
profit". This term of art is defined in section 183(c) as "any
activity other than one with respect to which deductions are
allowable for the taxable year under section 162 [trade or
business] or under paragraph (1) or (2) of section 212 [expenses
incurred for the production of income]." Section 183(b) permits
deductions which would be allowable only if the activity were
engaged in for profit, but such deductions may be taken only to
the extent that any gross income generated from the activity
exceeds deductions which are not dependent upon a profit
objective (e.g., State and local taxes under section 164).
Although a reasonable expectation of profit is not required,
the facts and circumstances must indicate that the taxpayer
entered into the activity, or continued the activity, with the
actual and honest objective of making a profit. Keanini v.
Commissioner, 94 T.C. 41, 46 (1990); Dreicer v. Commissioner, 78
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