- 12 -
revenues is an indication that the taxpayer did not have a profit
motive. Burger v. Commissioner, 809 F.2d 355, 360 (7th Cir.
1987), affg. T.C. Memo. 1985-523. A continuous series of losses
during the startup stage will not necessarily be deemed
indicative that the activity was not engaged in for profit. Sec.
1.183-2(b)(6), Income Tax Regs. However, the cumulative loss
should not be of such a magnitude that an overall profit from a
combination of operations and realized appreciation of business
assets could not possibly be achieved. Bessenyey v.
Commissioner, 45 T.C. 261, 274 (1965), affd. 379 F.2d 252 (2d
Cir. 1967); sec. 1.183-2(b)(4), Income Tax Regs.
From 1980 when petitioner began the thoroughbred horse
activity through 1998, Caduceus Thoroughbreds had cumulative
losses exceeding $888,000. The Court has recognized that the
startup phase of a horse breeding activity is 5 to 10 years.
Engdahl v. Commissioner, 72 T.C. at 669. In this case, the years
in issue are well beyond the period customarily necessary to
bring a similar operation to profitable status. Sec. 1.183-
2(b)(6), Income Tax Regs.
Petitioners’ Schedule C losses for 1994, 1995, 1996, and
1998 are $62,142, $80,205, $67,605, and $63,087, respectively.
Petitioners claim that the losses were due to unforeseen
circumstances such as lawsuits against the business, downturns in
business, changes in the purse structure at races, a decrease in
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Next
Last modified: May 25, 2011