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breeding operation. Petitioners employed two full-time workers
at ERE and hired additional employees during the summer to help
with the upkeep of the facilities. Because of the sensitive
nature of the birds, Mrs. Knudsen was their primary caretaker.
Generally, Mrs. Knudsen trained only one employee to help handle
and feed the birds. ERE also used a bookkeeper to maintain ERE’s
accounting records, but Mrs. Knudsen was responsible for keeping
ERE’s operational records.
Along with her duties at ERE, Mrs. Knudsen devoted a
significant amount of time to the various organizations to which
ERE belonged. ERE, through Mrs. Knudsen, belonged to over 10
organizations dedicated to animal breeding. Mrs. Knudsen became
active in several of these organizations.
Dr. Knudsen devoted most of his time to his medical
practice. However, he spent about 15 to 20 hours per week during
some months landscaping the property and handling the animals’
health needs. Dr. Knudsen’s participation in ERE was not
immaterial.
The time and effort petitioners spent on their exotic animal
breeding activity supports their contention of profit motivation.
Although petitioners enjoyed breeding exotic animals, on balance
we conclude that petitioners’ time and effort favor their
contention that the activity was engaged in for profit. See sec.
1.183-2(b)(3), Income Tax Regs.
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Last modified: March 27, 2008