- 13 - Petitioner indicated that his primary expectation for a profit came from the anticipated appreciation in the value of his horses. He failed to explain the basis of that expectation. Petitioner knew that it was unlikely that he and his wife would earn a profit from their horse breeding activity because they purchased NTS as a foal, and NTS physically could not breed with a mare for at least 3 years. Petitioner asserted that it would be another 3 years after NTS was ready for breeding before petitioner would sell any of the stallion’s foals. This 6-year timeframe does not include the mare’s 11-1/2 month-gestation period. Petitioner knew that the sale of a horse from his breeding activity would not occur until, at least, more than 7 years into the activity. Furthermore, the record shows that petitioner’s horse breeding activity produced a history of losses. Petitioner reported substantial losses for 1997, 1998, and 1999. There is no record of any receipts for the years in issue or years following. This factor weighs against petitioner. 5. The Success of the Taxpayer in Carrying On Other Similar or Dissimilar Activities Although an activity is unprofitable, the fact that a taxpayer has previously converted comparable activities from nonprofitable to profitable enterprises may show a profit objective. Sec. 1.183-2(b)(5), Income Tax Regs.Page: Previous 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Next
Last modified: May 25, 2011