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from which to analyze the expenses and to project the progress of
the activity. The activity was for the most part undocumented
and there was little or no interest shown in the financial aspect
of the activity or its prospects. See, e.g., Rinehart v.
Commissioner, T.C. Memo. 2002-9.
In addition, no effort was made to explain how the expenses
claimed on the returns related to the activity. There was no
explanation regarding how the assets being depreciated or the
totality of expenses comported with the needs of the activity
conducted. Respondent also points out that the cutting horses
lived with trainers and that it was, therefore, less clear how
all the expenses associated with Rance and LaRhea’s Oregon
acreage pertain to this activity. One of the most important
indications of whether an activity is being performed in a
businesslike manner is whether the taxpayer implements some
method for controlling losses. Burger v. Commissioner, 809 F.2d
355, 359 (7th Cir. 1987), affg. T.C. Memo. 1985-523. No such
explanation was provided in this case.
This factor favors respondent and reflects that Rance did
not operate this activity in a businesslike manner.
2. Taxpayer’s Expertise--A taxpayer’s expertise, research,
and study of an activity, as well as his consultation with
experts, may be indicative of a profit motive. Sec. 1.183-
2(b)(2), Income Tax Regs.
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Last modified: March 27, 2008