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activity for profit. Golanty v. Commissioner, 72 T.C. 411, 427
(1979), affd. without published opinion 647 F.2d 170 (9th Cir.
1981); sec. 1.183-2(b)(6), Income Tax Regs. Losses during the
initial or startup stage of an activity do not necessarily
indicate, 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 negate that
the taxpayer engaged in the activity for profit. Sec. 1.183-
2(b)(6), Income Tax Regs.
Petitioners sustained losses from the jet charter activity
each year from 1985 through 1997. Petitioners’ losses during the
early years of their operation could be attributed to a startup
phase of the activity, but the losses continued for 12 years.
Petitioners’ losses with respect to the jet charter activity
generally decreased, however, almost every year during the
relevant years. Further, petitioners’ net cash flow with respect
to the jet charter activity, although negative for each of the
relevant years, showed a general trend of increasing. Mr.
Rabinowitz also testified that the unforeseen safety problems
with the Falcon during the relevant years and the resulting
negative publicity hampered BHJ’s ability to obtain third-party
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