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operate it, they never had a business plan or took steps to
operate the ranch to make a profit. Taking the record as a
whole, we find that the facts and circumstances indicate that
petitioners did not possess the actual and honest objective of
making a profit from their ranch. Therefore, we find that
petitioners were not engaged in an activity for profit. Sec.
183(a).
Pursuant to section 183(b)(2), deductions are allowed for an
activity not engaged in for profit, but only to the extent that
gross income exceeds the deductions allowable under section
183(b)(1) without regard to whether or not the activity is
engaged in for profit. Petitioners did not prove that they had
any such expenses. Because petitioners had no gross income for
the taxable years in issue, none of their claimed expenses are
deductible. Therefore, we sustain respondent’s determinations.
As to the accuracy-related penalties imposed for the taxable
years in issue, respondent has satisfied his burden of production
under section 7491(c). Higbee v. Commissioner, 116 T.C. 438,
446-447 (2001). Section 6662(a) imposes a 20 percent penalty on
the portion of any underpayment of tax attributable to negligence
or disregard of rules or regulations. Sec. 6662(b)(1).
Negligence is any failure to make a reasonable attempt to comply
with the provisions of the internal revenue laws and includes any
failure by the taxpayer to keep adequate books and records or to
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