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Petitioner started the horse breeding activity with no
concept of what his ultimate costs might be or how he might
achieve any degree of cost efficiency. Additionally, petitioner
conducted his activity unaware of the amount of revenue he could
expect or what risks might impair the production of such
revenues.
Petitioner commingled the financial affairs of the horse
breeding activity with his personal finances. He paid all the
expenses of the horse breeding activity from his personal
account, and the horse breeding activity maintained no financial
accounts of its own. This commingling of funds is an indication
that the activity is a hobby rather than a business for profit.
See Ballich v. Commissioner, T.C. Memo. 1978-497.
Based on these facts, we conclude that petitioner did not
conduct the horse breeding activity in a businesslike manner.
Expertise of Petitioner
A taxpayer's expertise, research, and study of an activity,
as well as his consultation with experts, may be indicative of a
profit intent. Sec. 1.183-2(b)(2), Income Tax Regs. Since
childhood, petitioner has had an interest in cutting horses.
Petitioner studied breeding operations, read materials on
breeding methods, and attended a short course on equine
reproduction at a local university. Although petitioner became
knowledgeable about horses and breeding techniques, he was not
knowledgeable about the economics of the activity.
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