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Financial Status
Substantial income from sources other than an activity may
indicate that the activity is not carried on for profit,
especially if losses from the activity generate substantial tax
benefits. Sec. 1.183-2(b)(8), Income Tax Regs.
During the years in issue, petitioner’s average annual
salary was $238,134. As a result of the losses in her horse
activity, petitioner claimed significant reductions in her
taxable income in each year in issue and a total of $133,763 in
claimed tax savings over 7 years.
This factor weighs in favor of respondent.
Elements of Personal Pleasure
Personal or recreational aspects of an activity may indicate
that the activity was not conducted with a profit objective.
McKeever v. Commissioner, T.C. Memo. 2000-288; sec. 1.183-
2(b)(9), Income Tax Regs. However, the sole fact that a taxpayer
derives pleasure from an activity does not show lack of a profit
objective if the activity is, in fact, conducted for profit as
evidenced by other factors. Sec. 1.183-2(b)(9), Income Tax
Regs.; see also Jackson v. Commissioner, 59 T.C. 312, 317 (1972)
(a business will not be turned into a hobby merely because the
owner enjoys the activity).
In the context of horse breeding, a particularly relevant
fact is whether a taxpayer or the taxpayer’s family rides the
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Last modified: November 10, 2007