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Petitioners concede that they derived personal pleasure from
working with and showing their dogs. As this Court has stated,
with respect to this factor:
Unquestionably, an enterprise is no less a
"business" because the entrepreneur gets
satisfaction from his work; however, where
the possibility for profit is small (given
all the other factors) and the possibility
for gratification is substantial, it is clear
that the latter possibility constitutes the
primary motivation for the activity. * * *
[Burger v. Commissioner, T.C. Memo. 1985-523;
fn. ref. omitted.]
Therefore, the fact that petitioners derived substantial personal
pleasure from their dog-breeding activity supports a finding that
the activity was not carried on for profit.
Considering all of the facts and circumstances, we find that
petitioners have failed to prove that their dog-breeding and
showing activity was engaged in for profit. Rule 142(a).
Accordingly, respondent's determination in that regard is
sustained.
Issue 2. Accuracy-Related Penalty Under Section 6662(a)
Respondent also determined that petitioners were liable for
penalties under section 6662(a) and (b)(1) for each of the years
in issue because petitioners were negligent for claiming
deductions from their dog-breeding and showing activity. Section
6662(a) and (b)(1) imposes an accuracy-related penalty equal to
20 percent of the portion of an underpayment that is attributable
to negligence or disregard of rules or regulations.
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