Julius Lee Harrington and Mary Lou Ziter - Page 13




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               The third factor is the time and effort expended by the                
          taxpayer.  The fact that a taxpayer devotes much of his personal            
          time to an activity may indicate an intention to derive a profit,           
          particularly if there are no substantial personal or recreational           
          aspects to the activity.  Sec. 1.183-2(b)(3), Income Tax Regs.              
               Dr. Harrington did devote substantial time to the horse-               
          breeding activity.  However, we believe there were substantial              
          personal and recreational aspects to the activity.  Moreover, Dr.           
          Harrington did not give up his regular job as a social work                 
          professor to pursue making a living from the horse-breeding                 
          activity.  This was a pleasurable sideline for Dr. Harrington,              
          not a source of his livelihood.  The time and effort Dr.                    
          Harrington devoted to the activity (3 or 4 hours per day caring             
          for the horses) was not inconsistent with the time one might                
          expect to devote to a hobby of this kind.                                   
               The fourth factor is the expectation that assets used in the           
          activity may appreciate in value.  Sec. 1.183-2(b)(4), Income Tax           
          Regs.  Petitioners argue that their land has appreciated in value           
          (due mostly to the general increase in land values in the area,             
          but also, to some undefined extent, due to improvements                     
          petitioners made to the land).  Petitioners argue that the                  
          increase in the value of their land should be taken into account            
          in determining whether their horse-breeding activity was                    
          profitable.                                                                 






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