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8. The Financial Status of the Taxpayer
The receipt of a substantial amount of income from sources
other than the activity at issue, especially if the losses from
the activity generate large tax benefits, may indicate that the
taxpayer does not intend to conduct the activity for profit.
Sec. 1.183-2(b)(8), Income Tax Regs. Petitioners reported
adjusted gross income of $153,351, $150,228, and $179,837 in tax
years 2000, 2001, and 2002, respectively. Petitioners offset the
losses of $26,856, $34,155, and $17,256 for tax years 2000, 2001,
and 2002, respectively, resulting from Mrs. Smith’s direct
marketing activities against petitioners’ income to create
substantial tax savings. This factor favors respondent.
9. Whether Elements of Personal Recreation Are Involved
The presence of personal motives in carrying on an activity
may indicate that the activity is not engaged in for profit,
especially where there are recreational elements involved. Sec.
1.183-2(b)(9), Income Tax Regs.
Respondent argues that because Mrs. Smith focused her
activities on developing a downline distributor network, as
opposed to trying to sell products herself, the activities
involved primarily personal and recreational elements such as
dining out, meeting friends, and socializing. Respondent further
argues that Mrs. Smith enjoyed personal benefits of being able to
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