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rather than recollected as a good faith estimate.6 Moreover, to
the extent Dr. Hillman attended horse shows and otherwise oversaw
the show horse activities, we believe the recreational aspects of
these activities are manifest. All or most of the onerous labor
required in maintaining the horses--e.g., mucking stalls,
feeding, etc.--was hired out and deducted as a business expense.
We do not believe that the time and the effort which
petitioners have shown they dedicated to the show horse activity,
particularly given its recreational aspects, support an inference
that a profit motive existed.
Expectation That Assets May Appreciate
An expectation that assets used in the activity will
appreciate in value may indicate a profit objective. See sec.
1.183-2(b)(4), Income Tax Regs. A profit motive may be inferred
where there are no operating profits, so long as the appreciation
in value of the activity’s assets exceeds the operating expenses.
See id. The appreciation in value must be sufficient, however,
to recoup the accumulated losses of prior years. See Golanty v.
Commissioner, supra at 427-428; Bessenyey v. Commissioner, 45
6 Treasury regulations provide that an individual taxpayer
will be deemed to have “materially participated” in an activity
(which precludes a finding that the activity was a “passive
activity” for purposes of sec. 469) if the taxpayer participates
in the activity for more than 500 hours during the taxable year.
See sec. 1.469-5T(a)(1), Temporary Income Tax Regs., 53 Fed. Reg.
5725 (Feb. 25, 1988).
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