Robert A. and Sheila D. Routon - Page 8

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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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