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Petitioners did not conduct their activity in a businesslike
manner. They did not keep journals, ledgers, or organized
records of income and expense. They did not prepare income
statements, income projections, or other financial guidelines.
They did not retain organized files of invoices, receipts,
canceled checks, or bank statements. They did not maintain a
separate bank account or prepare a budget.2 They did not gauge
the activity's profitability. They made little effort to
advertise their horses to stud or to sell their horses outright.
Another indication of an activity engaged in for profit is a
change of operating methods, adoption of new techniques or
abandonment of unprofitable methods in a manner consistent with
an intent to improve profitability. Sec. 1.183-2(b)(1), Income
Tax Regs. In this regard, we do not believe that petitioners
were concerned with making their activity profitable. For a
period of almost two decades, during which the activity generated
a loss in every year, petitioners never attempted to change their
method of operation or take any other action that would reduce
the losses. Although petitioners did buy a new farm in 1993,
they have never utilized this farm in their activity.
This factor favors respondent.
2. Expertise of Petitioners
Preparation for an activity by extensive study or by
consultation with experts may indicate that a taxpayer has a
2 In contrast, Ms. Surridge kept extensive records and a
separate bank account for her insurance business.
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