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their failure even to track their horse show winnings, suggests a
certain indifference to the bottom line, and little probability
that their operations will become profitable. Petitioners’
history of losses, their inability to account for them, and their
bleak prospects all suggest a lack of profit motive.
Amount of Occasional Profits
The amount of occasional profits, if large in relation to
losses incurred or the taxpayer’s investment, may indicate a
profit motive. See sec. 1.183-2(b)(7), Income Tax Regs.
In this case, petitioners have never earned a profit from
their show horse activity, and the evidence suggests that any
future profits are unlikely.
Taxpayer’s Financial Status
Substantial income from sources other than the activity,
particularly if the losses from the activity generate substantial
tax benefits, may indicate that the activity is not engaged in
for profit, especially if there are personal or recreational
elements involved. See sec. 1.183-2(b)(8), Income Tax Regs.
Dr. Hillman’s earnings from his medical practice were
$181,849 in 1993 and $142,362 in 1994 and never less than
$142,362 annually from 1991 through 1996. Dr. Hillman’s medical
practice income allowed petitioners to sustain the losses from
their show horse activity. Deducting these losses significantly
reduced the after-tax cost of such activities to petitioners.
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