Sheila Mae Howard - Page 15

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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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