- 20 -
e. Change of Operating Methods
A willingness to adopt new techniques or abandon
unprofitable methods may indicate that a taxpayer has a profit
motive. Sec. 1.183-2(b)(1), Income Tax Regs.
Petitioner changed her plans for Temptation and Labrette.
She stopped entering Temptation in competitions because he was
lame. However, she did not adopt a new technique for becoming
profitable because she was already breeding Temptation. In fact,
petitioner continued to breed Temptation even though the two
foals produced by Temptation before the years in issue were far
below her expectations.
Petitioner changed her plan from breeding Labrette to
competing her. Petitioner contends that Labrette's success could
help her horse breeding activity become profitable, but we are
not convinced that she compared the expenses with the profit
potential. This suggests she cared about sports success, not
business success.
Petitioner testified that petitioners moved to Florida, and
then relocated in Florida, to be near dressage activities.
Petitioners also point out that petitioner culled her herd in
1987 when she donated three thoroughbred mares to a Gainesville
breeding program. However, petitioner did not show how these
changes would make her horse breeding activity profitable.
f. Advertising
The record includes copies of six advertisements for
Serenity Farms and Temptation that petitioner placed before the
Page: Previous 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 NextLast modified: May 25, 2011