-17-
Commissioner, 54 T.C. 742 (1970), affd. 445 F.2d 985 (10th Cir.
1971). Because petitioners reside in the Ninth Circuit,
petitioners have the burden of proving that they conducted their
activities with the primary, predominant or principal purpose of
realizing an economic profit independent of tax savings. See
Wolf v. Commissioner, 4 F.3d 709, 713 (9th Cir. 1993), affg. T.C.
Memo. 1991-212; Polakof v. Commissioner, 820 F.2d 321, 323 (9th
Cir. 1987), affg. T.C. Memo. 1985-197; Indep. Elec. Supply, Inc.
v. Commissioner, 781 F.2d 724, 726 (9th Cir. 1986), affg. Lahr v.
Commissioner, T.C. Memo. 1984-472.
Petitioners do not contend that section 7491(a) applies in
this case to shift the burden of proof to respondent, nor have
they established they met the requirements of section
7491(a)(2).6 Therefore, the burden of proof remains with
petitioners.
Whether a taxpayer has the primary, predominant or principal
purpose of realizing an economic profit independent of tax
savings is determined on the basis of all surrounding facts and
circumstances. Polakof v. Commissioner, supra at 324; Indep.
Elec. Supply, Inc. v. Commissioner, supra at 727; Dreicer v.
Commissioner, 78 T.C. 642, 645 (1982), affd. without published
opinion 702 F.2d 1205 (D.C. Cir. 1983); sec. 1.183-2(b), Income
Tax Regs. While a taxpayer’s expectation of profit need not be
6 Sec. 7491(a) shifts the burden of proof to the
Commissioner in some circumstances for cases involving
examinations that commenced after July 22, 1998. See Internal
Revenue Service Restructuring and Reform Act of 1998, Pub. L.
105-206, sec. 3001, 112 Stat. 726.
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