James L. Sullivan and Dorothy B. Sullivan - Page 35

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          elements involved.  Sec. 1.183-2(b)(8), Income Tax Regs.                    
               Mr. Sullivan's earnings from his employment as an investment           
          manager were $108,750 in 1992 and never less than $90,000                   
          annually from 1989 through 1995.  Clearly, Mr. Sullivan's                   
          employment income allowed petitioners to sustain annual losses              
          from their horse-related activities averaging $40,000 during                
          these years.  Deducting these losses significantly reduced the              
          after-tax cost of such activities to petitioners.  Cf. Golanty v.           
          Commissioner, supra at 429; Osteen v. Commissioner, T.C. Memo.              
          1993-519.  When combined with the recreational elements present             
          for Mrs. Sullivan, we believe the after-tax economics of                    
          petitioners' horse-related activities support an inference that             
          they were not engaged in for profit.                                        
          Personal Pleasure or Recreation                                             
               The existence of recreation elements in the activity may               
          indicate the activity is not engaged in for profit; conversely,             
          where an activity lacks any appeal other than profit, a profit              
          motivation may be thereby indicated.  Sec. 1.183-2(b)(9), Income            
          Tax Regs.                                                                   
               The record in this case amply supports a finding that Mrs.             
          Sullivan's recreational objectives were a significant component             
          of petitioners' horse-related activities.  As noted, Mrs.                   
          Sullivan has been actively pursuing an interest in horses since             
          she was 14, rode while in high school and college, and after                





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