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In comparison to the cutting horse activity, Rance and
LaRhea have been highly successful in the operation of Beneco.
Rance did not explain or show how his business acumen and
experience were used in the cutting horse activity. See Smith v.
Commissioner, T.C. Memo. 1997-503, affd. without published
opinion 182 F.3d 927 (9th Cir. 1999). Accordingly, this factor
favors respondent’s determination.
6. The Activity’s History of Income and/or Losses--An
important consideration is the taxpayer’s history of income
and/or losses related to the activity. Losses continuing beyond
the period customarily required to make an activity profitable,
if not explained, may indicate that the activity is not engaged
in for profit. Sec. 1.183-2(b)(6), Income Tax Regs.
As of the end of 2001, Rance had incurred nearly $350,000 in
losses from his Schedule F activity. By the end of 2005, the
claimed losses totaled more than $568,000. These continuing
losses were used to offset Rance and LaRhea’s ample income from
other pursuits, including their involvement in Beneco. The
amount of income in relation to the increasing and accumulating
expenses or losses does not show that Rance had a profit motive
with respect to this activity other than the outside possibility
of his breeding or acquiring a champion. See Burger v.
Commissioner, 809 F.2d at 360. Accordingly, this factor is
unfavorable for Rance and LaRhea.
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