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History of Income or Losses
A record of substantial losses over several years may be
indicative of the absence of a profit motive. Golanty v.
Commissioner, 72 T.C. 411, 426 (1979), affd. without published
opinion 647 F.2d 170 (9th Cir. 1981). Section 1.183-2(b)(6),
Income Tax Regs., provides, however, that if losses are sustained
because of unforeseen or fortuitous circumstances which are
beyond the control of the taxpayer, such losses would not be an
indication that the activity is not engaged in for profit. We
conclude that the losses sustained were the result of unforeseen
circumstances and are not an indication that the activity is not
engaged in for profit.
Those unforeseen circumstances include: (1) Congressional
investigations into the pharmaceutical industry which deterred
sponsorships to petitioners by the industry; (2) the adverse
effect of the luxury tax on the sailboat industry in the 1990s;
and (3) after petitioners purchased the Diane, the change in the
international racing rules. The Diane was built under the IOR,
the system that had been in place since the late 1960s and early
1970s. Petitioners could not have known that the rules would
change 2 years after their purchase of the Diane. Although the
Diane was still a competitive boat, it was less attractive to
charterers because it was built under the old system.
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