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503 U.S. 79, 84 (1992); Welch v. Helvering, 290 U.S. 111, 115
(1933). Section 183(d), however, presumes an activity is
conducted for profit if the gross income exceeds the attributable
deductions for 3 out of 5 consecutive years before the year in
issue. The presumption applies only after the third profit year.
Mitchell v. Commissioner, T.C. Memo. 2006-145 (citing section
183(d)).
The 5 consecutive years before 2002, the year in issue, were
1997, 1998, 1999, 2000, and 2001. Mr. Goode’s uncontroverted
testimony, which we find credible, established that Robco was
profitable for 4 of these 5 years, the only exception being 2001.
Therefore, petitioners are entitled to a presumption that Robco
was an activity conducted for profit for 2002, which respondent
did not rebut. However, as discussed infra, we find that Robco
was an activity conducted for profit even in the absence of the
presumption of section 183(d).
We do not believe it necessary to analyze each of the factors
enumerated in section 1.183-2(b), Income Tax Regs. Rather, we
focus on the ones we believe more important.
Robco is a small operation, conducted primarily by Mr. Goode,
a trained engineer with substantial experience in the field of
home and business construction and renovation. Given its size, we
would not expect Robco to have (nor did it have) an extensive
system of bookkeeping or financial statement analysis. But Mr.
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