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an expectation of profit. Cf. Harrison v. Commissioner, T.C.
Memo. 1996-509.
The Expectation That Assets May Appreciate in Value
An expectation that assets may appreciate in value may also
be an indication of the taxpayer's motive with respect to such
activity. Sec. 1.183-2(b)(4), Income Tax Regs. Petitioner
believed that the horse breeding activity would eventually become
profitable due to appreciation in the value of the ranch and the
horses. Petitioner's unsupported belief, however, is
insufficient. It is necessary that petitioner's objective be to
realize a profit on the entire operation. Bessenyey v.
Commissioner, 45 T.C. 261, 274 (1965), affd. 379 F.2d 252 (2d
Cir. 1967). This requires future net earnings and appreciation
sufficient to recoup the losses which petitioner sustained in
prior years. Id. Petitioner's contention that he expected to
experience a profit eventually is unsupported by the record. He
failed to produce credible evidence that the horse breeding
activity had any realistic chance of recovering the excessive
losses previously incurred. Accordingly, this factor weighs
against petitioner.
The Activity's 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). This Court has recognized that the
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