Harvey J. Davis and Patricia A. Davis - Page 24

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          petitioners’ farm improvements had appreciated $24,000 by 1998.             
          We assume the vast majority of this appreciation occurred as the            
          improvements were made because they were self-constructed.                  
               Petitioner expected that, for each dollar he spent on the              
          farm improvements, it would increase the value of petitioners’              
          property by $2.  Also, as stated above, petitioners’ horses and             
          farm improvements appreciated significantly in value during the             
          years in issue.  Petitioners had a bona fide expectation of                 
          future profit.  See Estate of Baron v. Commissioner, 83 T.C. 542,           
          553 (1984), affd. 798 F.2d 65 (2d Cir. 1986) (reasonable or                 
          realistic expectation of profit is not required if taxpayer has             
          bona fide expectation of profit); Dreicer v. Commissioner, 78               
          T.C. at 643-645.                                                            
               We are convinced that petitioners had appreciation in their            
          horses and farm improvements during the years in issue of                   
          approximately the same order of magnitude as their losses in                
          those years.  Thus, we need not decide whether petitioners’                 
          residence and land also increased in value.  Accordingly, this              
          factor favors petitioners.                                                  
               5.   Taxpayer's Success in Other Activities                            
               The fact that a taxpayer previously engaged in similar                 
          activities and made them profitable may show that the taxpayer              
          has a profit objective.  Sec. 183-2(b)(5), Income Tax Regs.                 
          Petitioners have not engaged in similar activities for profit,              

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