- 31 -
adequate records, which in accordance with section 1.183-2(b)(1),
Income Tax Regs., tends to indicate the existence of an intent to
make a profit.
2. Expertise of Taxpayer and Advisers
Preparation for an activity by extensive study or
consultation with experts may indicate a profit objective where
the taxpayer conducts the activity in accordance with such study
or advice. See sec. 1.183-2(b)(2), Income Tax Regs. A taxpayer
need not make a formal market study before engaging in an
activity but should undertake a basic investigation of the
factors that would affect profit. Westbrook v. Commissioner,
T.C. Memo. 1993-634, affd. 68 F.3d 868 (5th Cir. 1995).
Expertise with respect to the mechanics of an activity can be
distinguished from expertise in the economics of such activity,
and the taxpayer's failure to obtain expertise in the economics
of the activity in question may indicate a lack of profit
objective. Burger v. Commissioner, 809 F.2d 355, 359 (7th Cir.
1987), affg. T.C. Memo. 1985-523.
Between the two of them, Dr. Burrus and Mr. Gruen possessed
substantial experience with respect to breeding and caring for
cattle. While neither Dr. Burrus nor Mr. Gruen had formal
training regarding the economics of operating a profitable cattle
breeding business, both of them had been around cattle breeding
Page: Previous 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 NextLast modified: May 25, 2011