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anticipated a profit of $13,040 for 1999. Petitioner also
decided to liquidate in 2000 and therefore minimized costs and
entered fewer races. Petitioner has shown that he could earn
enough money in a year to cover his expenses; he accomplished
that in 1998.
8. The Financial Status of the Taxpayer
We next examine petitioner’s financial status. If a
taxpayer does not have substantial income or capital from sources
other than the activity in question, it may indicate that the
taxpayer engages in the activity for profit. Sec. 1.183-2(b)(8),
Income Tax Regs. Conversely, substantial income from sources
other than the activity, especially if the losses generate large
tax benefits, may indicate that the taxpayer is not conducting
the activity for profit. Id. Those with substantial income from
other sources have a much greater tax incentive to incur large
expenditures in a hobby type of business. Jackson v.
Commissioner, 59 T.C. 312, 317 (1972).
During the years at issue, petitioners’ financial status was
stable. Petitioner earned a good salary from the bank but not in
six figures. Both petitioners used some of their income from
their full-time jobs at the bank to help support the drag racing
activity during the startup phase. While petitioners’ financial
status was stable, their income was not so substantial that it
would indicate a great tax incentive to incur large losses from
the drag racing activity.
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