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Discussion
A. Petitioners’ Direct Marketing Activities
Section 183 restricts taxpayers from deducting losses from
an activity that is not “engaged in for profit”. Sec. 183(a).
An activity is engaged in for profit if the taxpayer entertained
an actual and honest profit objective in engaging in the
activity. Surloff v. Commissioner, 81 T.C. 210, 233 (1983);
Dreicer v. Commissioner, 78 T.C. 642, 645 (1982), affd. without
opinion 702 F.2d 1205 (D.C. Cir. 1983); sec. 1.183-2(a), Income
Tax Regs. The taxpayer’s expectation of profit must be in good
faith. Allen v. Commissioner, 72 T.C. 28, 33 (1979) (citing sec.
1.183-2(a), Income Tax Regs.).
In deciding whether petitioners operated their direct
marketing activities for profit, we consider the following nine
factors: (1) The manner in which they carried on the activity;
(2) their expertise or that of their advisers; (3) the time and
effort they expended in carrying on the activity; (4) the
expectation that the assets they used in the activity may
appreciate in value; (5) their success in carrying on other
similar or dissimilar activities; (6) their history of income or
loss with respect to the activity; (7) the amount of occasional
profits, if any, which they earned; (8) their financial status;
and (9) whether elements of personal pleasure or recreation are
involved. See sec. 1.183-2(b)(1) through (9), Income Tax Regs.
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