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3. Taxpayer's Time and Effort
The fact that a taxpayer devotes much time and effort to an
activity may indicate that he or she has a profit objective. See
sec. 1.183-2(b)(3), Income Tax Regs.
Petitioner was employed full-time as an engineer in 1994 and
1995. He worked 15 to 20 hours a week in 1994 and 1995 on the
tree farm. However, much of the time petitioner spent working on
the tree farm in those years was not directly related to raising
or selling trees. He built a pond in 1994, he built an access
road in 1994 and 1995, and he was engaged in litigation relating
to the pond in 1995. Petitioner failed to show to what extent
the pond and road were directly related to the tree farm.
Petitioner testified that the pond supported irrigation up to
about 1,000 feet from the pond, but he did not show how many of
his trees were within 1,000 feet of the pond. This factor favors
respondent.
4. Expectation That Property Used in the Activity Will
Appreciate in Value
A taxpayer may intend to make an overall profit when
appreciation in the value of assets used in the activity is
realized. See sec. 1.183-2(b)(4), Income Tax Regs. There is an
overall profit if net earnings and appreciation are enough to
recoup losses sustained in prior years. See Bessenyey v.
Commissioner, 45 T.C. 261, 274 (1965), affd. 379 F.2d 252 (2d
Cir. 1967).
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Last modified: May 25, 2011