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of profit motive, particularly where there are elements of
personal pleasure or recreation involved. See id.
Petitioners derived a substantial amount of income from Dr.
Knudsen’s medical practice. During 2000 and 2001, petitioners
reported $1,710,626 in wages from Dr. Knudsen’s medical practice.
Although petitioners were able to reduce their taxable income by
$355,239 in 2000 and 2001 because of their exotic animal breeding
activity,21 this tax benefit resulting from the activity does not
prove the absence of a profit motive. See Engdahl v.
Commissioner, 72 T.C. at 670. It is, however, a factor to be
considered. See Golanty v. Commissioner, 72 T.C. at 429.
Petitioners had sufficient financial means apart from ERE to
continue their exotic animal breeding activity at a loss. Dr.
Knudsen’s medical practice provided the funds to continue ERE’s
operations. Many deposits into ERE’s bank account consisted of
checks drawn from Dr. Knudsen’s medical practice.
Petitioners’ substantial income from Dr. Knudsen’s medical
practice, which was offset by ERE’s losses, supports a conclusion
that petitioners lacked the required profit motive.
This factor favors respondent’s position.
21From 1995 to 2002, petitioners used their losses from ERE
to reduce their Federal income tax liability by $1,145,944.
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