- 17 - substantial in relation to their losses in the fifth through seventh year of operating their horse activity. B. 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. Respondent contends that petitioners’ business plan was inadequate because it contained little information about the economics of the horse activity, and its financial projections showed that petitioners would lose money from the activity. Respondent contends that petitioners did not adequately investigate other Arabian horse farms before they began their horse activity because they did not examine the books and records of other breeders and they visited much larger horse farms that were involved in all aspects of the Arabian horse business. Respondent contends that petitioners did not run the horse activity in a businesslike manner because petitioners used the same bank accounts for their horse activity and their personal expenses. Respondent further contends that petitioner did notPage: Previous 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Next
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