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indicate a profit motive. Sec. 1.183-2(b)(4), Income Tax Regs.
Clearly, it was Rance’s expectation that the value of his horses
would increase and, in two instances, the values did increase by
small amounts. In addition, he held approximately 75 acres of
pasture land which could appreciate. It is also necessary,
however, that the objective be to realize a profit on the entire
operation. Bessenyey v. Commissioner, 45 T.C. 261, 274 (1965),
affd. 379 F.2d 252 (2d Cir. 1967). In order for Rance to recoup
the losses claimed through the years in issue, future earnings
and/or appreciation would have to be considerable. A champion
horse could appreciate substantially, but the likelihood of
producing a champion is small. Overall, we find that this factor
favors respondent’s determination.
5. Taxpayer’s Success in Similar or Dissimilar Activities--
Even if an activity is unprofitable, the fact that a taxpayer has
previously converted similar activities from unprofitable to
profitable enterprises may be an indication of a profit motive
with respect to the current activity. Sec. 1.183-2(b)(5), Income
Tax Regs. Rance had experience from a previous cutting horse
activity but abandoned it because he could not afford it.
Rance testified that, in his previous cutting horse activity, one
of his horses won a championship. He did not testify or show
that the appreciation in the assets in the earlier activity
resulted in overall profits or the amount of losses recouped.
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