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seeking activities before or during the operation of their horse-
related activity. This factor is neutral.
6. Activity’s History of Income and/or Loss
An activity’s history of income or loss may reflect whether
the taxpayer has a profit motive. See sec. 1.183-2(b)(6), Income
Tax Regs. Unless explained by customary business risks or
unforeseen or fortuitous circumstances beyond the taxpayer’s
control, a record of continuous losses beyond the period
customarily required to attain profitability may indicate that
the activity is not engaged in for profit. See id.
Petitioners have not had a profitable year since they
started their horse-related activity. While petitioners may have
expected the switch to thoroughbreds to be more profitable,
according to the history of their activity, their losses
increased. Petitioner testified that they switched because the
stakes races had higher purses; however, in 1993 petitioners were
not racing their horses, only breeding them. Furthermore,
petitioners failed to produce credible evidence that the horse-
related activity had a chance of recovering the losses they had
already incurred. See Bessenyey v. Commissioner, 45 T.C. 261,
274 (1965), affd. 379 F.2d 252 (2d Cir. 1967).
7. Amount of Occasional Profits
Occasional profits which are earned from an activity may
indicate a profit motive. See sec. 1.183-2(b)(7), Income Tax
Regs. The possibility of a substantial profit in a highly
speculative venture may indicate a profit motive even where
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Last modified: May 25, 2011