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and showing horses has recreational aspects, in particular for
someone with a demonstrated, long-term interest in horses, such
as Mrs. Sullivan. Whether her schedule of horse shows was too
arduous to constitute recreation requires a highly subjective
determination. The regulations address this problem by providing
for some discounting of time and effort where recreational
elements are inherent in the activity, which we shall do. In
addition, the unpleasant tasks associated with caring for horses
are required regardless of whether the activity is pursued as a
hobby or business. Although we believe that Mrs. Sullivan put
considerable time and effort into petitioners' horse-related
activities, this factor is not dispositive.
Expectation That Assets May Appreciate
An expectation that assets used in the activity will
appreciate in value may indicate a profit objective. Sec. 1.183-
2(b)(4), Income Tax Regs. Petitioners argue that the
appreciation in value of their horses,8 which they expect to
occur as a result of astute breeding decisions and arduous
promotion, demonstrates their profit motive notwithstanding years
of operating losses. The regulations further explain that a
profit motive may be inferred where there are no operating
profits, so long as the appreciation in value of the activity's
8 There is no evidence that petitioners' land or other
assets besides horses will appreciate in value.
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