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Petitioners’ uncontradicted expert testimony is that petitioners’
horses and land are worth approximately $2 million.
E. Taxpayers’ Financial Status
Petitioners had modest resources yet consistently invested
nearly half their annual income in Ascension because they
sincerely believed that they would eventually turn a profit.
Petitioners were shrewd, hardworking, diligent, and levelheaded.
We do not believe that they would squander their hard-earned
money on an extravagant hobby.
F. Amount of Profits
Although Ascension produced only losses, the opportunity to
earn substantial profits in a highly speculative venture is
sufficient to indicate that the activity is engaged in for
profit. Sec. 1.183-2(b)(7), Income Tax Regs. For example, “it
may be found that an investor in a wildcat oil well who incurs
very substantial expenditures is in the venture for profit even
though the expectation of a profit might be considered
unreasonable.” Sec. 1.183-2(a), Income Tax Regs.
Petitioners were simply poor marketers who lacked the
requisite reputation in the industry, but they had quality horses
and a venture that could be profitable if they changed their
business practices. For example, petitioners’ expert witnesses
indicated that syndication of one of Diamond Bask’s offspring,
Diamonds N Jazz, would be quite profitable.
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Last modified: May 25, 2011