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of any gross income generated by the activity. See sec. 183(a)
and (b)(2).3
Respondent asserts that petitioners were not engaged in the
show horse activity for profit, which would result in a
disallowance of their claimed losses to the extent that they
exceeded gross income generated by the activity. Petitioners
argue that they were engaged in show horse activity for profit
and that accordingly their losses are fully deductible.4
Section 183(c) defines an activity not engaged in for profit
as an “activity other than one with respect to which deductions
are allowable for the taxable year under section 162 or under
paragraph (1) or (2) of section 212.” Deductions are allowable
under section 162 or section 212 with respect to activities for
which the taxpayer has the requisite section 183 profit motive.
See Holmes v. Commissioner, ___ F.3d ___, ___ (6th Cir., July 1,
1999), revg. and remanding T.C. Memo. 1997-401; Hayden v.
Commissioner, 889 F.2d 1548, 1552 (6th Cir. 1989) (“The threshold
inquiry in determining whether an activity is a trade or business
or is carried on for the production of income is whether the
activity is engaged in for the primary purpose and dominant hope
3 Deductions that would be allowable without regard to
whether or not such activity is engaged in for profit are not
restricted by this rule. See sec. 183(b)(1).
4 Petitioners have not argued that any of the losses claimed
are nevertheless deductible by virtue of sec. 183(b)(1).
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