- 17 -
However, petitioner testified and had witnesses corroborate that
traditional advertising of a personal service business is not
welcomed by the clientele petitioner sought. Thus, petitioner
made a business decision not to advertise conventionally. The
question is not whether a particular mode of doing business is
wise, but whether the taxpayer honestly believed the method
employed would turn a profit for him. In this case, petitioner’s
judgment has proven prophetic. In Dreicer v. Commissioner, 78
T.C. 642 (1982), affd. without opinion 702 F.2d 1205 (D.C. Cir.
1983), we elucidated that the purpose of section 183 is “to allow
deductions where the evidence indicates that the activity is
actually engaged in for profit even though it might be argued
that there is not a reasonable expectation of profit. * * * This
is the proper legal standard under section 183.” Id. at 645.
Further, the evidence demonstrates that petitioner
demonstrated good business judgment. Her equestrian contacts are
responsible for more than 90 percent of her client base, and her
overall business produced a sizable net profit for all of the
years at issue. Therefore, petitioner has not only demonstrated
that she honestly believed that her mode of advertising would
turn a profit, but also has proven that it has been successful
and that adopting respondent’s suggestion would probably have
backfired.
Page: Previous 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Next
Last modified: November 10, 2007