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Petitioners may have believed that there was a possibility
of producing a champion horse that could generate a substantial
amount of revenue and correspondingly large profits. However,
the fact that petitioners suffered substantial losses year after
year without significantly changing their method of operation in
a meaningful way supports the inference that profit was not their
primary reason for engaging in this activity. Ranciato v.
Commissioner, 52 F.3d 23, 26 (2d Cir. 1995), vacating and
remanding T.C. Memo. 1993-536.
Taxpayers' Financial Status
The fact that the taxpayer does not have substantial income
or capital from sources other than the activity may indicate that
the activity is engaged in for profit. Sec. 1.183-2(b)(8),
Income Tax Regs. The legislative history of section 183(a) and
(b) indicates a particular concern about wealthy individuals
attempting to generate paper losses for the purpose of sheltering
unrelated income. Ranciato v. Commissioner, supra at 25-26; S.
Rept. 91-552, at 95-100 (1969), 1969-3 C.B. 423, 484-487. In
this respect, the Senate report focused primarily on farming
operations, including specifically the racing of horses, and
noted an overall concern about taxpayers with substantial income.
S. Rept. 91-552, supra at 95-98, 1969-3 C.B. at 485-486; see also
Ranciato v. Commissioner, supra at 25 n.3.
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