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The sixth factor is the taxpayer’s history of income and
losses with respect to the activity. Sec. 1.183-2(b)(6), Income
Tax Regs. Petitioners have had 9 straight years of substantial
sustained losses. During these 9 years, petitioners had gross
receipts of only $6,807, while incurring expenses of $117,183.
There was no material decrease in their losses over time.
Petitioners argue that they are still in the 15-year startup
phase of the activity, and that losses are expected during the
startup phase. Losses during the startup phase of an activity
are not currently deductible. Sec. 195(a). The losses must be
capitalized, and an election made to amortize the losses over a
period of not less than 60 months after the startup phase ends.
Sec. 195(b). Therefore, even if petitioners were able to
establish that their horse-activity losses were incurred during
the startup phase of the activity, they would not be entitled to
deductions for the years in issue. See McKelvey v. Commissioner,
T.C. Memo. 2002-63.
Moreover, we do not accept petitioners’ argument that these
losses were incurred in the startup phase of the activity.
Petitioners made no significant change to their operations during
the 9-year period of operations. They did not expand, have not
sought to expand, and do not intend to expand their business in a
material way. Nothing about their horse-breeding operation
requires a prolonged startup period. By their own testimony,
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