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activity, (7) the taxpayer’s financial status, and (8) elements
indicating personal pleasure or recreation associated with the
activity. These factors are relevant in the context of this case
to the extent they may indicate whether petitioner knew or
believed that her former spouse was or was not engaged in the
cattle-raising activity primarily for profit.
The question in this case, therefore, is not whether
petitioner knew the tax consequences of a not-for-profit activity
but whether she knew or believed that her former spouse was not
engaged in the activity for the primary purpose of making a
profit. Thus, in determining whether petitioner had actual
knowledge of an improperly deducted item on the return, more is
required than petitioner’s knowledge that the deduction appears
on the return or that her former spouse operated an activity at a
loss. Whether petitioner had the requisite knowledge is an
essential fact respondent was required to establish under section
6015(c)(3)(C). Respondent failed in this regard. The Court is
satisfied that petitioner’s knowledge of the activity in question
was that it was an activity that she knew was not profitable but
that she hoped and expected would become profitable at some
point. Respondent presented insufficient evidence to show that
petitioner knew that her former spouse did not have a primary
objective of making a profit with his cattle-raising activity.
Petitioner, therefore, is entitled to relief from the tax
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