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8. Petitioner’s Financial Status
That the taxpayer does not have substantial income or
capital from sources other than the activity in question may
indicate that the activity is engaged in for profit. See sec.
1.183-2(b)(8), Income Tax Regs. Substantial income from sources
other than the activity (especially if the losses from the
activity generate substantial tax benefits) may indicate a lack
of profit motive, particularly where there are elements of
personal pleasure or recreation involved. See id.
Respondent argues that little financial pressure or
incentive existed to pursue work that was consistently profitable
because petitioner could fund his mining activities with the
royalties he received from Zila and with the proceeds from the
sale of Zila stock.23 Petitioner contends that the tax benefits
he realized were relatively small in comparison to the out-of-
pocket expenditures he made and that his financial commitment to
his mining activity confirms his intention to make a profit from
the activity.
Petitioner’s income from Zila royalties and stock was
substantial during the years at issue; however, petitioner
invested a substantial portion of that money each year in his
mining activities. Petitioner financed his mining activity with
23With respect to his medical practice, however, petitioner
did not earn more than $36,723 in any year from 1989 through
1998, and he sustained losses in 3 of those years.
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