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OPINION
I. Horse-Breeding Activity
Section 183(a) provides generally that, if an activity is
not engaged in for profit, no deduction attributable to such
activity shall be allowed except as provided in section 183(b).
Section 183(c) defines an "activity not engaged in for profit" as
"any activity other than one with respect to which deductions are
allowable for the taxable year under section 162 or under
paragraph (1) or (2) of section 212."
The U.S. Court of Appeals for the Sixth Circuit, to which an
appeal in this case would lie, has held that for a deduction to
be allowed under section 162 or section 212(1) or (2), a taxpayer
must establish that he engaged in the activity with the primary
purpose and dominant hope and intent of realizing an economic
profit independent of tax savings. Hayden v. Commissioner, 889
F.2d 1548, 1552 (6th Cir. 1989), affg. T.C. Memo. 1988-310;
Godfrey v. Commissioner, 335 F.2d 82, 84 (6th Cir. 1964), affg.
T.C. Memo. 1963-1. The expectation of profit need not have been
reasonable; however, the taxpayer must have entered into the
activity, or continued it, with the objective of making a profit.
Hulter v. Commissioner, 91 T.C. 371, 393 (1988); sec. 1.183-2(a),
Income Tax Regs.; see also Campbell v. Commissioner, 868 F.2d
833, 836 (6th Cir. 1989), affg. in part, and revg. in part and
remanding T.C. Memo. 1986-569.
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Last modified: May 25, 2011