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G. History of Income and Losses
Entrants in the horse industry may incur substantial losses
during a lengthy startup stage. See Engdahl v. Commissioner, 72
T.C. 659, 669 (1979). Such losses are not necessarily an
indication that the activity was not engaged in for profit. See
sec. 1.183-2(b)(6), Income Tax Regs. Petitioners believed that
their losses would be recouped by the breeding, and sale, of one
or more preeminent stallions and that Ascension would provide an
income stream during their retirement years. See Bessenyey v.
Commissioner, 45 T.C. 261, 274 (1965) (stating that there is an
overall profit if net earnings and appreciation are enough to
recoup losses sustained in prior years), affd. 379 F.2d 252 (2d
Cir. 1967).
H. Personal Pleasure or Recreation
Petitioners did not ride Ascension’s horses for pleasure,
nor did they typically travel with the horses to exhibitions and
competitions. While petitioners thoroughly enjoy their work, a
business will not be turned into a hobby merely because the owner
finds it pleasurable. See Jackson v. Commissioner, 59 T.C. 312,
317 (1972).
I. Success in Similar or Dissimilar Activities
Prior to establishing Ascension, Mr. Routon created two
successful business ventures for which he had limited expertise
at the outset, a newspaper distributorship and a leak detection
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Last modified: May 25, 2011