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find that the yacht racing activity was not engaged in for
profit.
There was evidence that petitioners (1) did not operate
Diane Racing in a businesslike manner, (2) were not experts
regarding yacht racing (and that Mrs. Schwartz was not qualified
to handle the financial aspects of Diane Racing), (3) did not
devote a significant amount of time to Diane Racing, (4) were
unsure whether the Diane would appreciate in value, and (5)
derived personal pleasure from the yacht racing activity.
The evidence also established that Diane Racing had a
history of substantial losses (nearly $900,000 over 7 years) and
did not have profits. Additionally, there was evidence that
petitioners’ financial status (they earned over $2.18 million in
wages and reported less than $2 million in total income during
the years in issue) allowed them to operate Diane Racing without
intending to make a profit. Furthermore, in Schwartz I, we found
that petitioners derived personal pleasure from the yacht racing
activity.
At trial, the Court had to determine the credibility of the
witnesses, including petitioners, and reconcile the conflicting
documentary and testimonial evidence. See Johnson v.
Commissioner, T.C. Memo. 1999-237, affd. without published
opinion 246 F.3d 674 (9th Cir. 2000). Although we found
petitioners to be credible witnesses, on the basis of the
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