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Petitioner admitted that he and his son began the racing
activities without an intent to profit. The profit motive
allegedly arose some time later, but at a time which was at least
several years prior to petitioner’s son becoming eligible to win
cash prizes. No evidence was presented which supports a finding
that the losses were customary or usual for this type of
activity. See id. The losses were in no way unforeseen or due
to circumstances beyond the petitioner’s control; rather,
petitioner knew with certainty that profits could not be made.
See id. Based on these facts, and because the expenses were
incurred after the activity was already being engaged in, at a
time when the earning of income was impossible, and in connection
with an activity which was inherently familial and recreational,
we find that the expenses were not startup expenses consistent
with an intent to make future profits.
These factors favor respondent.
8. Financial Status of the Taxpayer.
Substantial income from sources other than the activity, in
particular if the losses result in substantial tax benefits, may
indicate that the taxpayer is not conducting the activity for
profit, especially if there are personal or recreational elements
involved. See sec. 1.183-2(b)(8), Income Tax Regs. The record
clearly shows that petitioner earned substantial income from his
full-time employment in 1993 in the amount of $44,709, and that
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Last modified: May 25, 2011