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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
objective).
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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Last modified: November 10, 2007