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period, petitioners reported gross receipts of $442,740. The
magnitude of petitioners’ losses in comparison with their
revenues is an indication that petitioners did not have a profit
motive. See Dodge v. Commissioner, T.C. Memo. 1998-89 (citing
Burger v. Commissioner, 809 F.2d at 360).
This factor favors respondent’s position.
7. The Amount of Occasional Profits Generated by the
Activity
The amount of profits earned in relation to the amount of
losses incurred, the amount of the investment, and the value of
the assets in use may indicate a profit objective. See sec.
1.183-2(b)(7), Income Tax Regs. The opportunity to earn
substantial profits in a highly speculative venture may be
sufficient to indicate that the activity is engaged in for profit
even though only losses are produced. See id. In determining
whether the taxpayer entered into the activity for profit, a
small chance of making a large profit may indicate the requisite
profit objective. See id.
Petitioners argue that the Court should consider the gross
profits realized from the sales of animals. However, petitioners
did not introduce evidence that the animals sales produced a
profit before operational expenses of ERE were taken into
18(...continued)
profit earned during 1989 through 1994.
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