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from his horse racing and breeding activity. His net losses from
the activity were more than $6 million from 1957 to 1993.
A small chance to make a large profit may indicate that a
taxpayer has a profit objective. Sec. 1.183-2(b)(7), Income Tax
Regs. Landry testified that 3 to 5 percent of those in the horse
racing and breeding activity make about $775 million. That does
not establish that petitioner had a small chance to make a large
profit, absent evidence showing what other horse operations did
to become profitable.
Petitioners contend that a horse that petitioner had bred in
1995, Bent Creek City, was worth $1 million. Petitioners contend
that this shows the potential of substantial profit from
petitioner's horse activity. We disagree. Landry's estimate of
Bent Creek City's value appears to be inflated; he testified that
petitioner sold the horse in 1996 for $35,000.
This factor favors respondent.
8. Financial Status of the Taxpayer
Substantial income from sources other than the activity,
especially if the losses generate large tax benefits, may
indicate that the taxpayer is not conducting the activity for
profit. Sec. 1.183-2(b)(8), Income Tax Regs.
Petitioner concedes that he had a substantial amount of
income from Westfield Gage at all times, but he contends that
this factor is neutral because most of his losses were direct
expenses requiring cash outlays. We disagree. Even if a
taxpayer pays expenses out of pocket the potential tax benefits
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