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activity. They used these losses to offset their substantial
income from other sources. Petitioners reported static gross
receipts of $5,055, $4,650, and $4,950 for the taxable years
1990, 1991, and 1992, respectively. The magnitude of the
activity's losses in comparison with its revenues is an
indication that petitioners did not have a profit motive with
respect to the dog-breeding activity. Burger v. Commissioner,
809 F.2d at 360. In fact, petitioners' reported expenses for
1991 and 1992 were far greater than even petitioner Mr. Smith's
estimates of the potential for gross revenues from dog breeding.
Petitioners assert that the reported losses were typical for
the startup stage of any profit-making activity. The record
reveals, however, that the massive losses were not the result of
expenses associated with the startup stage of a dog-breeding
enterprise. The losses during the first 3 years were not the
result of purchasing breeding stock, or from building a kennel.
Petitioners had a kennel built on their property in 1987, 2 years
before they became interested in the dog-breeding business. The
losses during the 3 years in issue were primarily the result of
the cost of dog boarding and handling. Dog boarding and handling
expenses are not associated with the startup stage of a dog-
breeding enterprise; in fact, these expenses are likely to grow
as the size of petitioners' dog stock grows. We therefore find
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