Paula L. Wilson - Page 7

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          losses and ultimately make a profit.  Sec. 1.183-2(b)(6), Income            
          Tax Regs. (stating that losses incurred during the initial phase            
          of a business are not necessarily an indication that the activity           
          was not engaged in for profit).  Respondent contends that the               
          fact that petitioners have never conducted a successful horse-              
          breeding and training business indicates a lack of profit                   
          objective.  We conclude that this factor is outweighed by the               
          following factors.                                                          
               Petitioners carried on the activity in a businesslike                  
          manner.  They advertised in trade magazines, attended seminars,             
          and kept records in a manner consistent with an intent to improve           
          profitability.  In addition, they abandoned an unprofitable                 
          method in a manner consistent with an intent to improve                     
          profitability (i.e., determining that the Skipper W bloodline               
          would be more profitable).  See sec. 1.183-2(b)(1), Income Tax              
          Regs.  Petitioners did not ride the horses for pleasure.  See               
          sec. 1.183-2(b)(9), Income Tax Regs. (stating that the presence             
          of personal pleasure may indicate the lack of a profit                      
               Ms. Wilson had significant experience training horses, and             
          petitioners consulted with experts relating to the caring,                  
          feeding, and training of horses.  In addition, petitioners                  
          regularly consulted with their accountant with respect to the               
          activity’s books and records.  Petitioners, in addition to their            

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