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7. The Amount of Occasional Profits Generated by the
Activity
The amount of profits earned in relation to the amount of
losses incurred, the amount of the investment, and the value of
the assets in use may indicate a profit objective. Sec. 1.183-
2(b)(7), Income Tax Regs. An opportunity to earn a substantial
ultimate profit in a highly speculative venture is ordinarily
sufficient to indicate that the activity is engaged in for profit
even though losses or only occasional small profits are actually
generated. Id.
In this case, petitioners’ losses from Brown Enterprises in
comparison with its revenues during the years in issue are
substantial. For 1996 and 1997, petitioners reported total
expenses of $15,219 and $14,276, respectively, and gross income
of $226 and $400, respectively.
We have recognized in prior cases that a gold mining
enterprise is speculative and may take years to realize a profit,
but that it also presents an opportunity to earn substantial
profits. See Tinnell v. Commissioner, T.C. Memo. 2001-106. The
record in this case shows that petitioner entered upon his mining
activity with the hope that by operating on a very small scale he
could minimize expenses and achieve modest profitability. He
also anticipated that if he found any significant amount of gold,
he would file a claim and sell it to a mining company for
development. Petitioner entered this activity with the belief
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