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Morley arrived home after dark, very tired, in a bad mood, and
dirty with a "certain aroma" from his work on the farm. It
appeared to the Court that Mrs. Morley resented the amount of
time Mr. Morley spent on the horse-breeding activity and that she
was unhappy that her husband came home every night dirty and
smelly. We are not convinced that Mr. Morley would subject
himself to such rigors solely for recreation or pleasure.
Furthermore, the record indicates that, as of the time of
trial, Mr. Morley had ridden the horses no more than three times
and only in conjunction with his work on the farm. The time and
effort Mr. Morley spent on the horse-breeding activity combined
with his lack of personal pleasure from the activity indicate a
profit motive.
D. History of Income or Losses
A record of substantial losses over several years may be
indicative of the absence of a profit motive. Golanty v.
Commissioner, 72 T.C. 411, 426 (1979), affd. without opinion 647
F.2d 170 (9th Cir. 1981). Section 1.183-2(b)(6), Income Tax
Regs., however, provides that a series of losses during the
startup phase of an activity may not necessarily be an indication
that the activity is not engaged in for profit. Furthermore, if
losses are sustained because of unforseen circumstances beyond
the control of the taxpayer, then such losses would not be an
indication that the activity is not engaged in for profit. Id.
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