Michael Paul Remler and Pauline M. Velez - Page 10

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          Relevant indicators include advertising, maintaining a separate             
          business bank account, the development of a written business                
          plan, and having a plausible strategy for earning a profit.  See            
          Morley v. Commissioner, T.C. Memo. 1998-312; Butler v.                      
          Commissioner, 1997-408; De Mendoza v. Commissioner, T.C. Memo.              
          1994-314; Ellis v. Commissioner, T.C. Memo. 1984-50.                        
               GJR was the only student in petitioners’ afterschool program           
          and microschool.  Petitioners did not advertise or otherwise seek           
          additional students.  Petitioners did not maintain a separate               
          bank account and did not have a written business plan.  In                  
          addition, petitioners testified that they expected to make a                
          profit.  However, BUSD reimbursed petitioners only for special              
          education expenses and Regional Center paid petitioners only for            
          a limited number of hours worked.  Petitioners testified that               
          they could get additional funding through grants, but they did              
          not apply for or receive any grants during the years in issue.              
          Because their current funding was limited and petitioners did not           
          seek additional funding, we find that petitioners did not have a            
          plausible strategy for earning a profit.                                    
               The fact that petitioners did not advertise, maintain a                
          separate bank account, have a written business plan, or have a              
          plausible strategy for earning a profit, outweighs any positive             
          inference made from petitioners’ adequate records.  We find that            
          petitioners did not operate the special education activity in a             






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