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losses from 1994 through 1996; however, in 1995 Mr. Rinehart
reduced the amount of his losses from the horse breeding activity
by approximately $25,000 from 1994, and in 1996 Mr. Rinehart
again reduced the amount of his losses from the horse breeding
activity by approximately $25,000 from 1995.
A record of substantial losses over several years may be
indicative of the absence of a profit motive. Golanty v.
Commissioner, 72 T.C. 411, 426 (1979), affd. without published
opinion 647 F.2d 170 (9th Cir. 1981). Section 1.183-2(b)(6),
Income Tax Regs., however, provides that a series of losses
during the startup phase of an activity may not necessarily be an
indication that the activity is not engaged in for profit.
Mr. Rinehart admitted that during 1986 through 1989 he could
not make a profit from the horses he owned. After the divorce
and bankruptcy, he ended the initial horse activity and went into
a “holding period” where he kept the few horses he still had, but
he did not train, show, or breed them. In 1990, Mr. Rinehart
reentered the cutting horse industry and started up the horse
breeding activity.
This Court has recognized that the startup phase of a horse
breeding activity is 5 to 10 years. Engdahl v. Commissioner, 72
T.C. 659, 669 (1979). We believe that the years in issue, 1994
through 1996, encompassed a startup period. See Phillips v.
Commissioner, supra; see also Engdahl v. Commissioner, supra at
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