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asking price of only $2.4 million, an amount well below the $3.5
million petitioner had already invested in the Feadship.
Opportunity for Profits From the Activity
The opportunity to earn substantial profits in a speculative
venture may indicate that an activity is engaged in for profit
even though losses or only occasional small profits actually
result. Sec. 1.183-2(b)(7), Income Tax Regs.
Regardless of any profit objective petitioner initially in
1990 may have had when he purchased the Feadship, the $3.5
million that petitioner incurred in costs by 1995 far exceeded
the $2.4 million asking price for the Feadship (indicating an
expected loss on the sale), and petitioner had no reasonable
basis for expecting a profit from SMSM’s charter of the Feadship,
which petitioner at trial acknowledged was conducted for the
purpose of offsetting costs of maintaining the Feadship while it
was listed for sale.
Expectation That Assets May Appreciate
An expectation that assets used in an activity may
appreciate in value may indicate a profit objective. Golanty v.
Commissioner, 72 T.C. at 427-428; Bessenyey v. Commissioner, 45
T.C. 261, 274 (1965); sec. 1.183-2(b)(4), Income Tax Regs.
Generally, however, an expectation that assets “may appreciate is
not sufficient, in itself, to demonstrate that an activity was
engaged in for profit.” Hendricks v. Commissioner, supra at 100.
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