Harvey J. Davis and Patricia A. Davis - Page 26

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          the startup period of their activity, we conclude that this                 
          factor is neutral.                                                          
               7.   Amount of Occasional Profits, If Any                              
               The amount of any occasional profits the taxpayer earned               
          from the activity may show that the taxpayer had a profit motive.           
          See sec. 1.183-2(b)(7), Income Tax Regs.  Petitioners did not               
          make a profit in any year.  Petitioners concede that this factor            
          favors respondent.                                                          
               8.   Financial Status of the Taxpayer                                  
               The receipt of a substantial amount of income from sources             
          other than the activity, especially if the losses from the                  
          activity generate large tax benefits, may indicate that the                 
          taxpayer does not intend to conduct the activity for profit.  See           
          sec. 1.183-2(b)(8), Income Tax Regs.                                        
               Respondent points out that petitioners had other sources of            
          income available to offset their losses from the horse activity.            
          Respondent points out that petitioners’ losses reduced their                
          taxable income by half in the years in issue.                               
               Petitioners’ other sources of income totaled $57,596 in                
          1994, $60,215 in 1995, and $55,969 in 1996.  They spent 40-50               
          percent of their income on their horse activity in the years in             
          issue.  Of their losses, depreciation accounted for only 17.5               
          percent in 1994, 10.6 percent in 1995, and 9 percent in 1996.               
          See Eisenman v. Commissioner, T.C. Memo. 1988-467 (the taxpayers            

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