- 16 -
if not explainable as due to customary business risks or
reverses, may indicate that the activity is not being engaged in
for profit. Sec. 1.183-2(b)(6), Income Tax Regs. Under section
1.183-2(b)(6), Income Tax Regs., there is less concern over
losses in the initial stages of an activity. A greater concern
arises when unexplained losses have continued for an extended
period. See Allen v. Commissioner, 72 T.C. 28, 34 (1979).
Here, petitioners’ losses from their gold mining activity
steadily decreased each year until 2000, when petitioners
reported their first profit from Brown Enterprises. The
profit/loss history of Brown Enterprises is summarized as
follows:
Year Profit/(Loss)
1995 ($20,339)
1996 (14,993)
1997 (13,896)
1998 (5,056)
1999 (2,681)
2000 203
The only tax returns of petitioners that were submitted into the
record were for 1996 and 1997, and detailed financial information
about other years is not available on this record. Consequently,
the cause of petitioners’ diminishing losses, whether it be
increased revenue or cost-cutting measures, or both, is unclear.
Regardless of the cause, petitioners’ progress from substantial
losses to modest profitability is significant.
This factor favors petitioners.
Page: Previous 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 NextLast modified: May 25, 2011