Harvey J. Davis and Patricia A. Davis - Page 25

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          but petitioner had engaged in other successful activities.                  
          Respondent concedes that this factor favors petitioners.                    
               6.   Taxpayer's History of Income or Losses                            
               A history of substantial losses may indicate that the                  
          taxpayer did not conduct the activity for profit.  See Golanty v.           
          Commissioner, 72 T.C. at 427; sec. 1.183-2(b)(6), Income Tax                
          Regs.   A taxpayer may have a profit objective even when the                
          activity has a history of losses, see Bessenyey v. Commissioner,            
          45 T.C. at 274, because losses during the initial stage of an               
          activity do not necessarily indicate that the activity was not              
          conducted for profit, see Engdahl v. Commissioner, 72 T.C. at               
          669; sec. 1.183-2(b)(6), Income Tax Regs.  We have said that the            
          startup phase of a horse-breeding activity may be 5 to 10 years             
          for standardbred horses.  See Engdahl v. Commissioner, supra;               
          Burrow v. Commissioner, T.C. Memo. 1990-621; Starr v.                       
          Commissioner, T.C. Memo. 1969-35.  A period of 5 to 10 years for            
          the startup phase of an Arabian-breeding operation is not                   
          unreasonable.  See Phillips v. Commissioner, T.C. Memo. 1997-128            
          (losses incurred in years 7 through 9 from the taxpayers’ Arabian           
          horse activity were incurred in the startup phase of the activity           
          and were due in part to unforeseen circumstances; losses did not            
          indicate that the activity was not engaged in for profit).  In              
          the instant case, the years at issue are years 5 through 7 of               
          petitioners’ activity.  Because petitioners’ losses were during             

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