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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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