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The Horse Activity
Respondent determined that petitioner’s horse activity was
not an activity engaged in for profit within the meaning of
section 183. Under section 183(a), if an activity is not engaged
in for profit, no deductions attributable to the activity shall
be allowed except as provided in section 183(b). Section
183(b)(1) allows only those deductions that are not dependent
upon a profit objective, such as taxes. Section 183(b)(2) allows
the deductions that would be allowable if the activity were
engaged in for profit, but only to the extent that gross income
attributable to the activity exceeds the deductions permitted by
section 183(b)(1). An “activity not engaged in for profit” is
defined in section 183(c) as “any activity other than one with
respect to which deductions are allowable for the taxable year
under section 162 or under paragraph (1) or (2) or section 212.”
Under section 183(d), in the case of an activity consisting
in major part of the breeding, training, showing, or racing of
horses, if the gross income derived from the activity exceeds the
deductions for any 2 of 7 consecutive taxable years, then the
activity shall be presumed to be engaged in for profit unless the
Commissioner establishes to the contrary. See Golanty v.
Commissioner, 72 T.C. 411, 425 (1979), affd. without published
opinion 647 F.2d 170 (9th Cir. 1981). Because M&S has operated
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