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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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