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Petitioners devote considerable attention in their brief to
arguing that the regulations set an impossible mandate for
profitability in the horse racing and breeding industry.
Specifically, petitioners point to the presumption under section
1.183-1(c), Income Tax Regs., that a horse breeding or racing
activity is engaged in for profit if its gross income exceeds
deductions for any 2 of 7 consecutive years. Petitioners
emphatically argue that it is only possible to make a profit once
in 25 years. Although petitioners seem to think otherwise, an
activity’s history of losses is not an exclusive factor, nor is
it an impossible obstacle to overcome in successfully proving a
profit motive in horse breeding activities. See Rinehart v.
Commissioner, T.C. Memo. 2002-9; Routon v. Commissioner, T.C.
Memo. 2002-7; Jordan v. Commissioner, T.C. Memo. 2000-206; Yancy
v. Commissioner, T.C. Memo. 1984-431; Ellis v. Commissioner, T.C.
Memo. 1984-50; Coe v. Commissioner, T.C. Memo. 1974-129; Deerman
v. Commissioner, T.C. Memo. 1974-84; Foster v. Commissioner, T.C.
Memo. 1973-13. It is a persuasive factor in this case, however,
because of the amount of the losses, the length of the period of
losses, and the absence of offsetting considerations.
We conclude that petitioner’s horse breeding and racing operation
was not an activity engaged in for profit.
Section 6651(a)(1) imposes an addition to tax for failure to
file a required return on the date prescribed, unless it is shown
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