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and conferences instructed them on how to run a successful animal
breeding business. Petitioners did not consult a business
adviser, prepare budgets, or implement a business plan.
Petitioners may have become well educated in exotic animal
breeding, but they did not establish an acquired expertise in
operating a profitable animal breeding business.
On several occasions, petitioners failed to investigate the
profitability of a breed before purchasing an animal. Mrs.
Knudsen purchased two Clydesdale horses without knowing what the
selling price of their offspring would be, and she purchased
other animal breeds that were unfit for the Kansas climate. In
addition, Mrs. Knudsen purchased animals without receiving any
health information on them.
On balance, we conclude that petitioners did not have, and
did not acquire from others, expertise in the economics of the
exotic animal breeding business.
This factor favors respondent’s position.
3. Petitioners’ Time and Effort Devoted to the
Activity
The fact that a taxpayer devotes personal time and effort to
carry on an activity may indicate an intention to derive a
profit, particularly where there are no substantial personal or
recreational elements associated with the activity. See Daley v.
Commissioner, T.C. Memo. 1996-259; sec. 1.183-2(b)(3), Income Tax
Regs. A taxpayer’s withdrawal from another occupation to devote
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