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C. Applying the Factors
1. Manner in Which the Taxpayer Conducts the Activity
Maintaining complete and accurate books and records,
conducting the activity in a manner substantially similar to
comparable businesses which are profitable, and making changes in
operations to adopt new techniques or abandon unprofitable
methods suggest that a taxpayer conducted an activity for profit.
See Engdahl v. Commissioner, 72 T.C. 659, 666-667 (1979); sec.
1.183-2(b)(1), Income Tax Regs.
Petitioners maintained a separate general journal and bank
account for the farm. However, they did not have a written
business plan, income projections, or profit plans. This
suggests that they did not operate their farm and horse activity
for profit. See Westbrook v. Commissioner, 68 F.3d 868, 873, 878
(5th Cir. 1995) (no written business plan, financial projections,
or estimates for return of capital), affg. T.C. Memo. 1993-634;
Osteen v. Commissioner, T.C. Memo. 1993-519; cf. Phillips v.
Commissioner, T.C. Memo. 1997-128 (written financial plan not
required for 32-horse farm where business plan evidenced by
action).
Petitioners contend that they had a business plan, which was
for Mrs. Berry to work full time on the farm and for them to have
at least 11 broodmares. We disagree. Petitioners did not
credibly show how they intended to make the farm profitable.
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