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Rance was generally knowledgeable about cutting horses and
had experience in riding, breeding, and caring for these animals.
Rance consulted with numerous experts; however, he did not detail
the specific advice received or how he employed that advice in
the activity. He sought no professional advice on the economics
of the cutting horse activity. He did, however, seek advice
about the tax aspects and ways to avoid classification of the
activity as a hobby. Rance did seek guidance and advice from
others, but he failed to explain how the advice he obtained was
used or how it assisted in the attempt to seek profits from the
activity. However, this factor favors Rance and LaRhea.
3. Time and Effort Spent in Conducting the Activity--The
fact that the taxpayer devotes much of his personal time and
effort to carrying on an activity, particularly if the activity
does not have substantial personal or recreational aspects, may
indicate an intention to derive a profit. Sec. 1.183-2(b)(3),
Income Tax Regs.
Rance spent 8 to 10 hours a week on this activity. His
involvement with cutting horses provided a recreational benefit.
The record is sparse, however, on the specifics of Rance’s
involvement in this activity. Accordingly, this factor favors
respondent’s determination.
4. Expectation That the Assets Will Appreciate in Value--
The taxpayer’s expectation that the assets used in the activity
may appreciate in value may, under certain circumstances,
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Last modified: March 27, 2008