Michael G. Bunney - Page 10

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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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