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Breeder’s awards, and death or problems with important horses.
However, petitioners presented no evidence at trial to
corroborate their claims. In fact, the 1995 business plan
supplement states that purses in races had increased over the
years but that the value of Arizona thoroughbreds had not
increased commensurately. The evidence available from the record
indicates that, despite petitioner’s realization that the
thoroughbred horse activities had not proved profitable, no
substantial changes were made to the operations.
The amount of profits earned in relation to the amount of
losses incurred, the amount of the investment, and the value of
the assets in use may indicate a profit objective. Sec. 1.183-
2(b)(7), Income Tax Regs. Profit means economic profit,
independent of tax savings. Drobny v. Commissioner, 86 T.C.
1326, 1341 (1986); Engdahl v. Commissioner, 72 T.C. at 670.
Petitioners’ Federal income tax returns reflect that, without the
effect of depreciation deductions, two horses were sold at a
profit of $333 during the 4 years in issue. Petitioner has never
made a profit in his horse activities, although they have
generated generous tax savings in the form of depreciation
deductions and net losses that offset his substantial income as a
physician.
Petitioners argue that the Internal Revenue Service unfairly
pursues high income taxpayers who engage in breeding and racing
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