Kathy A. King - Page 13




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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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