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Sec. 1.183-2(b)(3), Income Tax Regs. However, petitioner was
employed full-time as a paralegal during the taxable years at
issue. Petitioner also owned and operated the Anchor Inn.
Petitioner testified that she participated in the horse breeding
activity only on weekends.
The fact that a taxpayer was able to convert an unprofitable
enterprise to a profitable one in the past may indicate that he
or she is engaged in the present activity for profit, even though
the activity is presently unprofitable. Sec. 1.183-2(b)(5),
Income Tax Regs. Petitioner has owned and operated the Anchor
Inn since about 1990. During the taxable years 1996 through
1998, petitioner claimed total losses of $62,091 with respect to
the Anchor Inn. Petitioner has not demonstrated the ability to
convert an unprofitable enterprise to a profitable one.
A substantial profit, though only occasional, would
generally indicate that an activity is engaged in for profit.
Sec. 1.183-2(b)(7), Income Tax Regs. Petitioner earned no
profits of any size at any time from her horse breeding activity.
The fact that the taxpayer has substantial income from
sources other than the activity in question, particularly if the
losses from the activity generate substantial tax benefits, may
indicate that the activity is not engaged in for profit. Sec.
1.183–2(b)(8), Income Tax Regs. During the taxable years 1996,
1997, and 1998, petitioner reported wage income of $43,454,
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