- 38 -
account.19 Further, they introduced little evidence regarding the
purchase prices of the animals or their adjusted bases in the
animals. Petitioners also assert that many of ERE’s animals were
capable of yielding profits. However, a highly speculative
profit potential does not outweigh the substantial losses
incurred during the years of operation. See Giles v.
Commissioner, T.C. Memo. 2006-15; McKeever v. Commissioner, T.C.
Memo. 2000-288.
After 12 years of operation, petitioners’ exotic animal
breeding activity has never generated a net profit. Despite
their extraordinary losses, petitioners continued to expand their
operation and to increase their losses.20
This factor favors respondent’s position.
8. Petitioners’ Financial Status
The fact that a taxpayer does not have substantial income or
capital from sources other than the activity in question may
indicate that the activity is engaged in for profit. See sec.
1.183-2(b)(8), Income Tax Regs. Substantial income from sources
other than the activity (especially if the losses from the
activity generate substantial tax benefits) may indicate a lack
19Petitioners did not offer evidence enabling us to
calculate the profit or loss from each sale or from the aggregate
sales.
20During 2000 and 2001, petitioners incurred losses totaling
$901,469.
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