-16-
however, that the taxpayer did not conduct the activity for
profit, but losses that continue to be sustained beyond the
period that customarily is necessary to bring the operation to
profitable status may indicate the taxpayer did not engage in the
activity for profit. Engdahl v. Commissioner, 72 T.C. at 668;
sec. 1.183-2(b)(6), Income Tax Regs. Losses due to unforeseen
circumstances beyond the taxpayer’s control do not indicate that
the taxpayer did not engage in the activity for profit. Sec.
1.183-2(b)(6), Income Tax Regs. Abandoning an activity after
indications that the activity will be unprofitable signifies that
the taxpayer engaged in the activity for profit. Canale v.
Commissioner, T.C. Memo. 1989-619.
Petitioner sustained losses from the drag racing activity
each year from 1991 to 1997 while he was beginning and developing
the drag racing activity. During 1998, petitioner successfully
attracted a sponsor and earned a profit, albeit small.
Petitioner testified that during 1998 he also incurred some one-
time expenses related to the sponsorship, such as painting the
sponsor’s logo on his car. Petitioner sustained further losses
during the years at issue, but these losses were due first to the
unforeseen event of his contact at Sac and Fox being terminated
that led to his losing his sponsorship and next to the winding up
and liquidation of his business. Petitioner attempted to
minimize his losses during the years at issue by cutting costs
and entering fewer races.
Page: Previous 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 NextLast modified: May 25, 2011