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Pharmaceuticals, Inc., which later became a wholly owned
subsidiary of Zila. At the time of trial, Zila had over 200
employees and a market capitalization of approximately $200
million. The cream, which is now called Zylactin, is still on
the market as an over-the-counter treatment for herpes, and
petitioner has received substantial royalties from his invention.
The record demonstrates that petitioner has realized profits
from other successful business ventures. This factor favors
petitioner’s position.
6. Petitioner’s History of Income or Loss
From the Activity
A taxpayer’s history of income or loss with respect to any
activity may indicate the presence or absence of a profit
objective. See Golanty v. Commissioner, 72 T.C. at 426; sec.
1.183-2(b)(6), Income Tax Regs. The magnitude of the activity’s
losses in comparison with its revenues is an indication that the
taxpayer did not have a profit motive. See Dodge v.
Commissioner, T.C. Memo. 1998-89 (citing Burger v. Commissioner,
809 F.2d at 360), affd. without published opinion 188 F.3d 507
(6th Cir. 1999). “[A] series of startup losses or losses
sustained because of unforeseen circumstances beyond the control
of the taxpayer may not indicate a lack of profit motive.” Kahla
v. Commissioner, T.C. Memo. 2000-127 (citing Engdahl v.
Commissioner, 72 T.C. at 669; sec. 1.183-2(b)(6), Income Tax
Regs.).
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