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advice. Sec. 1.183-2(b)(2), Income Tax Regs. Mrs. Cooper has
had an interest in horses for many years and is an avid rider.
She watched videos and read magazines to further her knowledge
about horses. She also held a leadership position with the
National Barrel Horse Association. However, her background and
interest in horses are not necessarily synonymous with expertise
in horse barrel-racing as a business.
Mrs. Cooper’s knowledge regarding barrel-horse competition
is not inconsistent with the pursuit of such an activity as a
hobby. She had no experience with the economics of a profitable
barrel-horse operation, and she did not make an extensive study
of the profit potential of training horses or of competing as a
horse barrel-racer. While a formal market study is not required,
her failure to make basic investigation of the factors that would
affect profit is indicative of a lack of profit objective.
Dunwoody v. Commissioner, T.C. Memo. 1992-721; Underwood v.
Commissioner, T.C. Memo. 1989-625; Burger v. Commissioner, T.C.
Memo. 1985-523, affd. 809 F.2d 355 (7th Cir. 1987).
Factor (3): The Time and Effort Expended by the Taxpayer in
Carrying On the Activity
The fact that the taxpayer devotes much of his or her
personal time and effort to carrying on an activity may indicate
a profit motive. Sec. 1.183-2(b)(3), Income Tax Regs. However,
the regulations effectively provide that time and effort are
somewhat discounted as a factor when the activity has substantial
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