James L. Sullivan and Dorothy B. Sullivan - Page 16

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          savings in relation to petitioners' losses cannot be assessed for           
          most years.  However, for 1992, if we accept petitioners'                   
          estimate of the value of their horses in that year, and Mr.                 
          Sullivan's testimony that premiums for horse insurance are                  
          approximately 4 percent of value, the cost of insurance is                  
          relatively small in relation to the $51,295 in losses incurred              
          that year.  There is no evidence of the savings from purchasing             
          used trucks.  On this record, we do not believe petitioners have            
          shown that the foregoing cost-cutting measures were material in             
          relation to the losses they were regularly incurring.  Cf. Taras            
          v. Commissioner, T.C. Memo. 1997-553; Smith v. Commissioner, T.C.           
          Memo. 1997-503.                                                             
               Petitioners cite their 1985 decision to try a different                
          bloodline as evidence of a change in operating methods to improve           
          profitability.  While we believe this change constitutes the type           
          of change contemplated in the regulations, it has not stemmed               
          petitioners' substantial losses, and 10 years of unbroken losses            
          have followed it.  Moreover, the absence of any additional                  
          significant changes since 1985, in the face of losses of the                
          magnitude being incurred by petitioners through 1995, creates an            
          inference adverse to petitioners' profit motivation.                        
               A profit motive may be indicated where an activity is                  
          carried on in a manner substantially similar to other activities            
          of the same nature which are profitable.  Sec. 1.183-2(b)(1),               





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