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presumption that he should generally be afforded a startup period
wherein losses are expected, petitioner also testified that he
knew when starting his school that he would not be able to cover
his operating costs with tuition. Further, he realized his
continuing operation of RBS would require that he would have to
personally expend a large amount of money as an investment to
achieve his potential objective of being offered a high-paying
job with an athletic shoe or apparel company. Given the history
of RBS losses in this case, combined with petitioner’s hopeful
dream of a lucrative job, this factor weighs heavily in favor of
respondent.
The Amount of Occasional Profits, If Any
The amount of profits in relation to the amount of losses
incurred may provide a useful criterion in evaluating whether the
taxpayer engaged in an activity for profit. Sec. 1.183-2(b)(7),
Income Tax Regs.
Petitioner has not generated a profit for RBS in any of the
years in issue, or in any years prior or subsequent to the years
in issue. Accordingly, this factor weighs in favor of
respondent.
Financial Status of Taxpayer
Substantial income from sources other than the activity may
indicate that the taxpayer is not engaged in the activity for
profit, particularly if the losses generate substantial tax
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Last modified: November 10, 2007