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It is well established that in order to take a
deduction for expenses incurred in carrying out a trade
or business the taxpayer must have entered into the
venture with the primary and predominant purpose and
objective of making a profit. See Thomas v.
Commissioner, 792 F.2d 1256, 1259 (4th Cir. 1986);
Tallal v. Commissioner, 778 F.2d 275, 276 (5th Cir.
1985). "Primary" in this context means "of first
importance" or "principally", while "profit" means
economic profit independent of tax savings. Malat v.
Riddell, 383 U.S. 569, 572 (1966); accord, Surloff v.
Commissioner, 81 T.C. 210, 233 (1983); Seaman v.
Commissioner, 84 T.C. 564, 588 (1985). * * *[5]
The existence of the requisite profit objective is to be
determined by examining all the facts and circumstances, giving
greater weight to objective facts than to the taxpayer's
statement of intent. Siegel v. Commissioner, 78 T.C. 659, 699
(1982); sec. 1.183-2(a) and (b), Income Tax Regs. Section 1.183-
2(b), Income Tax Regs., lists nine nonexclusive factors relevant
to the issue of profit objective.6
5The Supreme Court also addressed the standard to be applied
when it stated: "We accept the fact that to be engaged in a
trade or business, the taxpayer must be involved in the activity
with continuity and regularity and that the taxpayer's primary
purpose for engaging in the activity must be for income or
profit." Commissioner v. Groetzinger, 480 U.S. 23, 35 (1987).
6In order to determine whether, and to what extent, sec. 183
and the regulations thereunder apply, the activity or activities
of the taxpayer must be ascertained. Sec. 1.183-1(d)(1), Income
Tax Regs. Generally, the Commissioner will accept the
characterization by the taxpayer of several undertakings as
either a single activity or separate activities. Id.
Petitioners have treated their horse racing and breeding
operations as one activity, and respondent has accepted this
treatment.
(continued...)
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