Donald Keith Morley and Rebecca B. Morley - Page 9

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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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