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II. Application of the Factors
1. The Manner in Which the Taxpayer Carried On the Activity
We begin by examining the manner in which petitioner carried
on her thoroughbred horse breeding and racing activities. The
fact that a taxpayer carries on the activity in a businesslike
manner may indicate a profit objective. Sec. 1.183-2(b)(1),
Income Tax Regs. In deciding whether a taxpayer conducted an
activity in a businesslike manner, we consider whether accurate
books were kept, whether the activity was conducted in a manner
substantially similar to that of other for-profit activities of
the same nature, and whether changes were made in an attempt to
earn a profit. Ballich v. Commissioner, T.C. Memo. 1978-497;
sec. 1.183-2(b)(1), Income Tax Regs.
Petitioner did not conduct her thoroughbred horse breeding
and racing activities in a businesslike manner. Although she
kept adequate records and employed a CPA to prepare a few
financial statements, respondent argues, and we are persuaded,
that she failed to make meaningful changes3 in her method of
operation despite a 14-year history of significant losses. Her
enduring losses of this magnitude without making changes shows
3Petitioner changed trainers and adapted her breeding
activities to adapt to qualifying criteria changes in the New
York Breeders Program. These changes did not occur, however,
until after 1996, the year in question. Accordingly, we place no
weight on petitioner’s argument that these changes were made to
stem petitioner’s losses before 1996.
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