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petitioners derived substantial recreational benefit from the
time they spent with their dogs; therefore, this factor is
generally neutralized.
4. Expectation That the Assets Will Appreciate in Value
Another factor is the taxpayers' expectation that the assets
used in their breeding activity would increase in value. Sec.
1.183-2(b)(4), Income Tax Regs. Mr. Smith testified that in 1992
one of petitioners' dogs, Dacher Gotta Get a Gun, was the 10th-
ranked Portuguese water dog in the country. In addition,
petitioners, at the time of trial, owned the first- and second-
ranked Portuguese water dogs in the country. Therefore, there is
evidence that the value of some of the dogs in the kennel has
appreciated. However, petitioners have failed to offer into
evidence any records on the value of any of their dogs, or on the
appreciation in value of their inventory of dogs during the years
in issue. This paucity of evidence makes it difficult for us to
determine whether petitioners had an expectation that the assets
used in their activity would increase, or if they did increase,
in value. See Carson v. Commissioner, T.C. Memo. 1990-508.
5. Taxpayer's Success in Similar or Dissimilar Activities
We next consider petitioners' prior experience in similar or
dissimilar activities. Sec. 1.183-2(b)(5), Income Tax Regs.
Although an activity is unprofitable, the fact that a taxpayer
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