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Petitioners did not engage Dr. Cortelezzi until 1993, well
after the start of their horse activity. As in Daley v.
Commissioner, T.C. Memo. 1996-259, petitioners decided to
commence their activity with little concept of the expenses
involved or of the steps required to achieve cost efficiency and
an eventual profit.
Petitioners did not prepare for the economic aspects of the
activity by study or consultation with experts, and they have not
shown that, prior to inception of the activity, they had any
concept of what their ultimate costs might be, how they might
achieve any degree of cost efficiency, the amount of revenue they
could expect, or what risks might impair the production of such
revenues. Accordingly, they were unprepared for the economic
realities of the horse business. See Rinehart v. Commissioner,
T.C. Memo. 1998-205.
This factor favors respondent’s position.
3. Petitioners’ Time and Effort
The fact that a taxpayer devotes personal time and effort
to carry on an activity may indicate an intention to derive a
profit, particularly where there are no substantial personal or
recreational elements associated with the activity. See Daley v.
Commissioner, supra; sec. 1.183-2(b)(3), Income Tax Regs.
While working full time, petitioners also managed and
operated their paso fino activity during the years at issue.
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