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7. Amount of Occasional Profits--The amount and frequency
of occasional profits earned from the activity may also be
indicative of a profit objective. Sec. 1.183-2(b)(7), Income Tax
Regs. Rance contends that he sold horses during the years in
issue where the price exceeded the original cost. The amounts of
gain from those sales, however, were minimal ($839 and $230).
Moreover, Rance did not report any overall profits from the
activity. In other words, there was no showing of profit when
considering the overhead, depreciation, etc. The record reflects
continual and overwhelming losses. Accordingly, this factor is
unfavorable for Rance and LaRhea.
8. Financial Status of the Taxpayer--Substantial income
from sources other than the activity, particularly if the
activity’s losses generate substantial tax benefits, may indicate
that the activity is not engaged in for profit. This is
especially true where there are personal or recreational elements
involved. Sec. 1.183-2(b)(8), Income Tax Regs.
Without counting any farm income Rance and LaRhea had
combined gross income (before taking into account a disputed and
conceded income issue involving offshore deferred compensation)
of $376,439, $421,563, $644,620, and $1,664,811 for the years
1998, 1999, 2000, and 2001. By 2005, Rance and LaRhea’s gross
income was $2,739,845, without considering the cutting horse
activity. They see this scenario as one that shows that they had
the resources to effectively operate the cutting horse activity
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