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T.C. Memo. 1981-550 (losses in third, fourth, and fifth years of
cattle breeding operation found to occur during startup phase).
Petitioners’ losses throughout the first 6 years of Maple
Row’s operations are consistent with Dr. Burrus’s stated business
plan of expanding his herd of productive cows to 100, and not
expecting to cover his losses until that time. As previously
discussed, petitioners’ records and other evidence corroborate
that they were building a herd during the years at issue.
Indeed, the herd’s annual production of registered purebred
offspring nearly tripled during the period. Although petitioners
incurred losses during all 6 years in issue, we are persuaded
that these years constituted a reasonable startup period. As a
result, the continuous losses do not indicate the absence of an
intent to profit, under section 1.183-2(b)(6), Income Tax Regs.
While petitioners also incurred losses for the next 4 years
(1996-99), the issue we must decide is whether they had an actual
and honest intent to profit during the years in issue, given
their herd growth and other factors extant at the time;
petitioners’ intentions and expectations for the years in issue
were not informed by the experience of subsequent years.15
15 We express no opinion herein whether petitioners were
engaged in their cattle activity for profit during 1996 through
1999, given the facts and circumstances known to them in those
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