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writing activity. We accept petitioner's testimony at trial that
he was best known at Treasury for his writing ability and that he
was often called upon to perform writing-based tasks. This may
have contributed to petitioner's belief that he could make money
as an author. Moreover, we are convinced that petitioner viewed
his agreement with Northwest as offering a real potential for
generating profit.
The next two factors, the taxpayer's history of income or
losses with respect to the activity and the amount of occasional
profits, if any, which are earned, are examined in tandem.
Respondent argues that petitioner's continuous record of losses
from his activity is persuasive evidence that he was not engaged
in this activity for profit. Petitioner argues that, while his
efforts as an author have not proved profitable up to this time,
his hard work will be rewarded with substantial income when his
search for a new publisher proves successful.
It is undisputed that petitioner did report a loss in each
year of operation. However, there are two important facts in
this case which should be considered with respect to these
losses.
First, section 1.183-2(b)(6), Income Tax Regs., states that
losses incurred during the startup phase of a business are not
necessarily indicative of a lack of profit motive. Because
petitioner did not begin treating his writing activity as a trade
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