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stud or that they had developed an organized plan to reap a
profit from breeding or racing horses in the future.
This factor favors respondent.
8. Petitioners' Financial Status
We consider petitioners' financial status. Sec.
1.183-2(b)(8), Income Tax Regs. Substantial income from sources
other than the activity, particularly if the activity's losses
generated substantial tax benefits, may indicate that the
activity is not engaged in for profit. This is especially true
where there are personal or recreational elements involved. Id.
Petitioners received income mainly from Ms. Surridge's
insurance business and from Mr. Surridge's pension. For 1990
through 1994, petitioners' taxable income, if they had not
claimed the losses on their horse activity, would have equaled
$34,706, $37,136, $31,598, $68,610, and $18,047, respectively.
Petitioners' ability to earn income from sources other than their
horse activity enabled them to finance the activity and to use
its losses to shelter their other income from Federal income tax.
The claimed losses for the activity also allowed petitioners to
shelter Ms. Surridge's self-employment income from Federal
self-employment tax.
This factor favors respondent.
9. Elements of Personal Pleasure
We consider the personal pleasure derived by petitioners in
conducting their activity. Sec. 1.183-2(b)(9), Income Tax Regs.
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