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Manner of Carrying On the Activity
A profit objective is suggested where a taxpayer carries on
an activity in a businesslike manner and where accurate and
complete books and records are maintained relating to the
activity. Sec. 1.183-2(b)(1), Income Tax Regs. A profit
objective may be suggested for an activity where the activity is
conducted in a manner similar to other activities of the taxpayer
which are profitable. Id.
As discussed above, petitioner had no experience in owning a
yacht, no written business plan, and no budget for the
restoration costs, and petitioner made no good faith, reasonable
investigation before making his investment in the Feadship.
Incomplete books and records relating to the 1995 charter of the
Feadship were maintained. Petitioner incurred substantial costs
in connection with the effort to restore the Feadship without
properly monitoring the work.
Expertise of Petitioners or Their Advisers
A profit objective may be indicated by a taxpayer’s
expertise in, research on, and study of an activity, as well as
by a taxpayer’s consultation with experts. Sec. 1.183-2(b)(2),
Income Tax Regs. However, a taxpayer’s reliance on the advice of
someone who the taxpayer knew, or should have known, had a
conflict of interest may not be reasonable. Addington v.
Commissioner, 205 F.3d 54, 59 (2d Cir. 2000), affg. T.C. Memo.
1997-259; Vojticek v. Commissioner, T.C. Memo. 1995-444 (such
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