N. Thomas Ryan - Page 14

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               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.                            







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