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indicate the lack of profit motive unless such losses occurred
because of unforeseen or unfortuitous circumstances.
Petitioners began their horse activity in 1987. From 1987
to 1997, petitioners reported losses in 11 consecutive years
totaling $542,751.12 During that same period, petitioners
reported gross receipts of $56,010, all earned after the years at
issue. The magnitude of the activity’s losses in comparison with
its revenues is an indication that petitioners did not have a
profit motive. See Dodge v. Commissioner, T.C. Memo. 1998-89
(citing Burger v. Commissioner, 809 F.2d 355, 359 (7th Cir.
1987)), affd. without published opinion 188 F.3d 507 (6th Cir.
1999).
Petitioners first argue that their losses were incurred
during the startup phase of the activity. We agree that the
years at issue, 1991-93, are startup years for the enterprise.
As in Dodge v. Commissioner, supra, however, the massive losses
are attributable more to petitioners’ inability to generate
significant sales of foals than to startup expenditures.
Petitioners did not sell a horse until 1994, even though
petitioners had several horses that they knew would not win in
the show ring or produce marketable foals. Although petitioners’
12If gross income from a horse activity exceeds the
deductions attributable to the activity during 2 out of 7 taxable
years, a presumption arises that the activity is engaged in for
profit. See sec. 183(d). Because petitioners’ activity has
never shown a profit, the statutory presumption does not apply.
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