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their horse-breeding activities with the intent of making a profit.
The fifth factor is petitioners’ success in carrying on
other similar or dissimilar activities. The regulations indicate
that a taxpayer who was able to convert an unprofitable
enterprise to a profitable one in the past may be able to do the
same thing with the current activity. Sec. 1.183-2(b)(5), Income
Tax Regs.
Petitioners do not argue that Dr. Harrington had prior
success turning an unprofitable business into a profitable one.
Instead, petitioners argue that Dr. Harrington’s academic success
in the field of social work supports their argument that they
engaged in the horse-breeding activity to make a profit. We see
no direct correlation between success as a social work
academician and educator and financial success as a breeder of
horses. Petitioners did not offer evidence to show that Dr.
Harrington achieved success in business generally, or in breeding
farm animals specifically.
Petitioners’ academic success does show that they are highly
intelligent people who were fully capable of doing the simple
arithmetic necessary to realize that the horse-breeding operation
was not, and as operated, could not be, profitable. Their
continuing the operation during the years in issue without a
prospect or plan to achieve profitability indicates a lack of
profit motive.
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