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While people may not normally associate trading in used cars as a
recreation, we do recognize that some people do get a certain
pleasure from repairing cars.
But, what concerns us more is the history of losses. While
a person may start out with a bona fide expectation of profit,
even if it is unreasonable, there is a time when, in light of the
recurring losses, the bona fides of that expectation must cease.
See Filios v. Commissioner, 224 F.3d 16 (1st Cir. 2000), affg.
T.C. Memo. 1999-92. This is particularly pertinent here where
petitioner could not estimate when the activity might become
profitable. Moreover, there is nothing in the record to
reasonably suggest that the activity, as petitioner operated it
during the years in issue, had been, or would ever be,
profitable.
We are also concerned that there is no evidence that
petitioner, despite losses of more than $79,000 from 1993 to
1996, ever sought expert advice concerning the profitability of
the venture. In the same vein there is no evidence that
petitioner altered his method of doing business to cut the stream
of losses. The bottom line is that, whatever this activity was,
it was not operated for profit.
There is one aspect of respondent’s determinations with
regard to Mayo’s Auto Sales that we think was erroneous.
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Last modified: May 25, 2011