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Petitioner argues that many years before he formed Arabian
Crossings, he purchased a horse for $4,000 and sold it for
between $20,000 and $25,000.14 Even if we accept this as true,
petitioner has not proven that he did in fact make a profit on
the sale of a horse prior to forming Arabian Crossings. As the
record shows, many expenses in addition to purchase price have to
be factored into whether a transaction produced an overall
profit.
(6) The Taxpayer’s History of Income or Losses With Respect to
the Activity
Petitioner argues that the losses are due to expenses
incurred in the startup phase of his activity. As this Court
stated in Bessenyey v. Commissioner, 45 T.C. 261, 274 (1965),
affd. 379 F.2d 252 (2d Cir. 1967):
the presence of losses in the formative years of a
business, particularly one involving the breeding of
horses, is not inconsistent with an intention to
achieve a later profitable level of operation, bearing
in mind, however, that the goal must be to realize a
profit on the entire operation, which presupposes not
only future net earnings but also sufficient net
earnings to recoup the losses which have meanwhile been
sustained in the intervening years.
We are not convinced that the years in issue fall within
what petitioner asserts is the startup phase of his breeding,
training, and showing of Arabian horses activity. We have said
14We have only petitioner’s uncorroborated testimony
regarding the sale.
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