# PURSUANT TO INTERNAL REVENUE CODE SECTION 7463(b),THIS OPINION MAY NOT BE TREATED AS PRECEDENT FOR ANY OTHER CASE.T.C. Sum m ary Opi ni on 20 13 -8 5

UNITED STAT ES TAX COURT
KAREN A. CHARUKA-JUSTIN, Pet it io ne r v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 14 87 1- 11 S. File d No ve m be r 4, 2 01 3.

Karen A. Charuk a-J us ti n, p ro se. Eug en e A. Korn el , forres po nd en t.

SUMM ARY OPINION PANUTHOS, Chi ef Sp eci al Trial Ju dg e: Thi s ca se was h eardpu rs ua ntto th e p ro vi si on s o f se ct io n 7 46 3 o f th e In te rn al Rev enue Co de ineffe ctwhen th e pe ti ti on was fi le d. Purs ua ntto sec ti on 74 63 (b ), th e d eci si on to be en te redis no t rev ie wab le by any

othe r co urt, an d thi s o pi ni on sh al l n otbe tre at edas p rece de nt- 2 -

fo r an y othe r cas e. All sec ti on refe ren ces are t o the Int ern al Rev enue Co de in effe ctforth e y ear i n i ss ue , andall Ru le refe ren ces are t o t he Tax C ourt Rul es of Prac ti ce an d P ro cedur e, un le ss ot he rwis e in di cat ed
. Ina no ti ce o f de fic ie nc y

date d M arch 23 , 20 11 , res po nd en t d et erm in eda de fic ie nc y

of $ 22 ,37 0 i n p et it io ne r’s 20 07 Fed eral in co m e ta x. Th e so le is su e fo r de ci si on is whet he r pe ti ti on er’s d og bre ed in g a ct iv ity was an a ct iv ity

no t en ga ge d in forpro fit
. Thi s ca se was s ub m it te d fu ll y st ip ul at ed . The s ti pu la ti on of f act s an d t he
ex hi bi ts att ach edth eret o a re i nc or po rat edhe rei n b y

th is refe ren ce. Pet it io ne r res id edinNew Yorkat t he ti m e th e p et it io n was fil ed
. Bac kg ro un d Pet it io ne r, a se lf- em

pl oyed U.S. cu st om s b ro ke r, ob ta in eda cu st om s br ok er’s l ic en se fro m

U.S. Cus to m s an d B or de r Pro te ct io n i n 1 99 1. Si nc e 2 00 3 pe ti ti on er h as op erat eda cu st om s b ro ke rag e b us in es s, At lant ic Air Expr es s, LLC (Atl an ti c Air ), fro m

he r ho m e. Fo r 20 04 pe ti ti on er re po rte d s el f-em pl oym en t in co m e o f $4 5,6 49 . From th is act iv ity , pet it io ne r rep orte d ane t p ro fiton Sch edul e C, Pro fitor Lo ss Fro m

Bu si ne ss , foreach y ear f ro m 20 05 to 20 11 . For 2 00 7 t he y ear i n i ss ue , pet it io ne r rep orte d ane t p ro fitof $ 13 0,8 72 on Sch edul e C.- 3 -

Pet it io ne r be ga n b reed in g Gre atPyren ees do gs in19 94 on a ha lf a cre o f pr op erty inNew York , wher e sh e se t up k en ne li ng faci li ti es . Peti ti on er i nc urred
ex pe ns es to setup th e k enne l an d t o p ur ch as e d og s, fo od , gro om in g s up pl ie s an d equi pm en t, a v eh ic le to tra ns po rt t he an im al s, an d a dv ert is in g. Fro m 19 94 to 19 99 pe ti ti on er s ou gh t t o b ui ldth e p res ti ge an d re pu ta ti on of t he do g b reed in g op erat io n, Im

pyrial GreatPyren ees (Im pyrial ), by pro du ci ng a ro bu stst oc k o f GreatPyren ees do gs an d s ho win g t he do gs at d og sh ows . She sp ok e wit h
ex pe rie nc edGreatPyren ees bre ed ers an d v is it edva rio us su cces sf ul ke nn el s t o ga th er i nf orm at io n fo r de ve lo pi ng a br eed in g p ro gr am . Peti ti on er’s d og bre ed in g act iv ity su st ai ne d l os se s ev ery y ear u nt il 20 10 , forwhi chsh e rep orte d asm al l n et pr of it
. In19 99 , when pe ti ti on er o wne d fi ve do gs , sh e m ov edIm pyrial to a 15 -acr e farm inOran ge Co un ty, New York . The p ur po se of t he m ov e was to acco m m od at e a l arg e b reed in g p ro gr am . Peti ti on er al so ob ta in eda pu reb reddo g li cen se fro m

th e New York S ta te Depa rtment o f Agr ic ul tu re an d M ark et s, wh ic h i s av ai labl e o nl y

forke nn el s tha t m ai nt ai n m or e th an10 do gs . By 20 07 pe ti ti on er own ed26 do gs . Pet it io ne r’s m ai n s ou rce o f in co m e fro m th e d og bre ed in g a ct iv ity is th e sa le of pupp ie s. Pet it io ne r typic al ly charg es $1 ,20 0 fo r a p up py bu t ch arg es as m uc h a s- 4 -

$4 ,00 0 fo r a p up py sir edfro m on e o f he r to p- win ni ng sh ow d og s. Pet it io ne r so ld ap pr ox im at el y

si x p up pi es be twee n 1 99 4 a nd19 99 . Duri ng 20 00 an d 2 00 1 pe ti ti on er’s d og s p ro du cedsi x l it te rs . In 2 00 2 t he do gs be ga n t o h av e ferti li ty pr ob le m s. Pet it io ne r’s do gs ha d o th er h eal th pro bl em s tha t al so di srup te d t he br eed in g p ro gr am , in cl ud in g Lym e d is eas e, ba ct eri al in fect io ns , andth yro id pr ob le m s. Fro m

20 02 to 20 09 pe ti ti on er atte m pt edto bre ed46 fem al e d og s, res ul ti ng in17 pre gn an ci es . The p reg na nc ie s p ro du ced13 li tt ers . In 2 00 9 a fte r co ns ul ta ti on s wi th ve te rin ari an s an d fe rti li ty spe ci al is ts pe ti ti on er ad min is te reda m on th lo ng an ti bi ot ic tre atm en t t o a ll of t he do gs an d t reat edso m e o f th e fem al e do gs with thyroi d m ed ic at io n. Pe ti ti on er’s d og s p ro du cedtwo li tt ers sh ortl y aft er th e m ed ic al tre atm en t. The se were the fir stpre gn an ci es inne arl y 18 m on th s. Pet it io ne r so ld18 pupp ie s i n 2 01 0. Inad di ti on to sel li ng pupp ie s, p et it io ne r se ll s s em enfro m th e m al e d og s t o br eed ers an d c harg es studfees ran gi ng fro m $1 ,20 0 t o $ 2,5 00 forto p- win ni ng sh ow d og s.- 5 -

Pet it io ne r rep orte d p ro fitor l os s o n S ch edul e C fo r Im pyrial as f

ol lo ws: 1 Year In co m e Exp en se s Gain or ( Los s) 20 05 $4 ,72 9 $7 6,5 90 ($ 71 ,86 1) 20 06 6,9 00 96 ,99 6 (9 0,0 96 ) 20 07 4,6 00 71 ,11 6 (6 6,5 16 ) 20 08 4,5 00 69 ,34 0 (6 4,8 40 ) 20 09 6,8 00 30 ,79 0 (2 3,9 90 ) 20 10 33 ,60 0 30 ,12 0 3,4 80 20 11 8,3 20 27 ,36 9 (1 9,0 49 ) Pet it io ne r rep orte d the in co m e an d e xp en se s at tri bu tabl e to Im pyrial on a Sch edul e C atta ch edto he r 20 07 Fed eral in co m e ta x re tu rn . Peti ti on er as se rts th at (1 ) sh e en ga ge d i n the act iv ity with t he in te ntto m ak e a p ro fitan d (2 ) th athe r return fo r ta xabl e y ear 2 00 2 was ex am in edan d re sp on de ntall owe d h er t o t reat Im pyrial as atra de or b us in es s. Res po nd en t d et erm in edth atpe ti ti on er d idno t en ga ge inth e d og bre ed in g act iv ity forpro fitan d d is al lo wedpe ti ti on er’s ex pe ns e d educ ti on s cl ai m edin
ex ces s o f th e rep orte d i nc om e.

Pet it io ne r be ga n Impy

ria l i n 1 99 4. Im

pyrial su st ai ne d l os se s ev ery y ear 1 fro m 19 94 to 20 09 . The rec or d d oe s n otrefl ectth e am ou nt s o f Im pyrial ’s in co m e, ex pe ns es , andlo ss es be twee n 1 99 4 a nd20 04
.- 6 - Dis cu ss io n The Co m m is si on er’s d et erm in at io n i n ano ti ce o f de fic ie nc y is pre su m ed
co rrec t, an d the tax pa y er g en eral ly bears th e b ur de n o f pr ov in g t ha t the de te rm in at io n i s i nc orrect . Rul e 1 42 (a); W el chv. Hel ve rin g, 2 90 U.S. 11 1, 1 15 (1 93 3) . The s ub m is si on of acas e fu ll y st ip ul at eddo es no t al te r th e b ur de n o f pr oo f. See Ru le 12 2( b) ; Bo rch ers v. Co m m is si on er, 9 5 T.C. 8 2, 9 1 (1 99 0) , aff’d, 94 3 F .2d22 (8th C ir. 1 99 1)
. Purs uantto sec ti on 74 91 (a), the burd enof p ro of as t o fa ctua l m at te rs sh ift s to th e Co m

m is si on er u nd er ce rta in cir cu m st an ces . Peti ti on er h as no t al le ge d t ha t se ct io n 7 49 1( a) ap pl ie s, n ordo es th e rec or d e st ab li sh th atpe ti ti on er s at is fie s the
se ct io n 7 49 1( a)(2 ) requi rem en ts . Peti ti on er the refo re b ears th e b ur de n o f pr oo f. See Rul e 1 42 (a). Deduc ti on s ar e al lo wedso le ly as a m at te r of leg is la ti ve gra ce. Dep ut y v. du Po nt , 30 8 U.S. 4 88 , 49 3 (1 94 0) ; New Co lo ni al Ice Co . v. Hel ve rin g, 2 92 U.S. 43 5, 44 0 (1 93 4) . A tax pa y er b ears th e b ur de n o f pr ov in g e nt it le m en t t o a ny deduc ti on cl ai m ed . See Ru le 14 2( a); INDOPCO, In c. v. Co m mis si on er, 5 03 U.S. 79 , 84 (1 99 2) ; Welch v. Hel ve rin g, 2 90 U.S. at 1 15
. Sect io n 1 62 (a) g en eral ly allo ws d educ ti on s fo r al l o rd in ary an d n eces sa ry ex pe ns es pa idor i nc urreddu rin g t he tax ab le y ear i n c arrying on an y tra de or- 7 -

bu si ne ss . A tax pay er s eek in g t o d educ t trad e o r bu si ne ss ex pe ns es un de r se ct io n 16 2 m us t es tabl is h tha t the un de rlyin g a ct iv ity was e ng ag edinwith an a ctua l an d ho ne stpro fitob

jecti ve . Dreic er v . Comm is si on er, 7 8 T.C. 6 42 , 64 5 (1 98 2) , aff’d witho utpubl is he d o pi ni on , 70 2 F .2d12 05 (D.C. Cir . 19 83 ). The t ax pa y er m us t ha ve en te redin to or c on ti nu edth e act iv ity with t he actua l, h on es t, an d b on a fi de ob jecti ve of m ak in g apro fit . Fil io s v . Comm is si on er, 2 24 F.3d16 , 23 (1s t Ci r. 20 00 ), aff’g T.C. Me m o. 1 99 9- 92 ; Dre ic er v . Comm is si on er, 7 8 T.C. at64 4- 64 5;
se c. 1.1 83 -2 (a), In co m e Tax Reg s. We con si de r al l o f th e fac ts an d c irc um st an ces in de te rm in in g wh ethe r a t ax pa y er en te redin to th e act iv ity fora pr of

it , pl aci ng gr eat er wei gh t upo n o bjec ti ve fact s tha n t he tax pa y er’s s ta te m en ts of i nt en t. Drei cer v . Comm is si on er, 7 8 T.C. at64 5. The fol lo win g n in e n on ex cl us iv e fac to rs are re le va ntinde te rm in in g whe th er the tax pa y er en ga ge d i n t he act iv ity forpro fit : (1 ) th e m an ne r in whi ch th e ta xp ay er ca rri es on th e act iv ity ; (2 ) th e ex pe rti se of t he tax pa y er o r he r advi so rs ; (3 ) th e ti m e an d e ffo rt e xp en de d b y th e ta xp ay er i n c arrying on th e act iv ity ; (4 ) th e ex pe ct at io n tha t as se ts us edinth e act iv ity m ay ap pr eci at e in
va lu e; (5) th e su cces s o f th e ta xp ay er i n c arrying on ot he r si m il ar o r di ss im il ar act iv it ie s; (6) th e ta xp ay er’s h is to ry of i nc om e o r lo ss es with re sp ectto th e act iv ity ; (7 ) th e am ountof o ccas io na l p ro fit s, i f an y , whi chare ea rn ed ; (8 ) th e- 8 -

fin an ci al st atus of t he tax pa y er; an d (9 ) th e el em en ts of p ers on al pl eas ur e o r recr eat io n. Se c. 1.1 83 -2 (b ), In co m e Tax Reg s. No on e fac to r is de te rm in at iv e, an d o urde te rm in at io n o f whe th er an act iv ity is en ga ge d i n fo r pr of

itis no t m ad e on th e b as is th atm or e fac to rs in di cat e a p ro fitob jecti ve or l ackth ereo f. See i d. W e co ns id er ea chof the fact or s h erei n. I. Man ne r in Whi chth e Tax pa y er Carri es On the Acti vi ty The factth atth e ta xp ay er carri es on th e act iv ity ina bu si ne ss li ke m an ne r an d m ai nt ai ns co m

pl et e an d a ccu rat e b oo ks an d re co rd s m ay in di cat e th atth e act iv ity is en ga ge d i n fo r pr of

it . Eng da hl v. Co m

m is si on er, 7 2 T.C. 6 59 , 66 6 (1 97 9) ; s ec. 1 .18 3- 2( b) (1 ), In co m e Tax Reg s. A ch an ge of o pe rat in g m etho ds , ad op ti on of n ew te ch ni qu es , or aba nd on m en t o f unpr of it ab le m etho ds ina m an ne r co ns is te ntwith a n i nt en t t o i m pr ov e p ro fit ab il ity

m ay als o i nd ic at e a p ro fitm ot iv e. Sec. 1 .18 3- 2( b) (1 ), In co m e Tax Reg s. Perhaps th e m os t i m po rta ntin di cat io n o f whe th er an act iv ity

is be in g p erfo rm edina bu si ne ss li ke m an ne r is whet he r th e ta xp ay er i m

pl em en ts so m e m etho d fo r co ntro ll in g l os se s. Bu rg er v . Co m m is si on er, 8 09 F.2d35 5, 3 59 (7t h C ir. 1 98 7) , aff’g T.C. Mem o. 1 98 5- 52 3. Pet it io ne r lo gg edth e ex pe ns es pe rta in in g t o t he do g b reed in g a ct iv ity ina le dg er s he m ai nt ai ne d fo r eac h year. She als o re ta in edco pi es of r ecei pt s t o m at ch al l ex pe ns es lo gg edinth e le dg er an d re co rd edso ur ces of i nc om e in th e le dg er.- 9 -

Pet it io ne r m ai nt ai ne d b in de rs of i nf orm at io n re late d t o the do gs , in cl ud in g br eed in g re co rd s, s ho w award s, re co rd s o f pupp ie s p ro du ced , reg is tra ti on reco rd s, ve te rin ary reco rd s, an d p ur ch as e an d s al e rec or ds . Peti ti on er u se d s tu d fe e co nt ract s an d s al es co nt ract s, an d s he m ai nt ai ne d fi le s o f th es e co nt ract s an d pr ov id edco pi es to he r cu st om ers . Peti ti on er ad ve rti se d the do g b reed in g a ct iv ity , an d s he us edbu si ne ss card s an d s ta ti on ery. Pet it io ne r al so ob ta in eda pu reb red do g l ic en se fro m

th e New York S ta te Depa rtment o f Agr ic ul tu re an d M ark et s, whi chsh e ren ewedeach y ear. In19 99 pe ti ti on er m ov edto a pr op erty th atco ul d a cco m

m od at e a l arg e br eed in g p ro gr am . W ithi n ay ear, s he ha d d oubl edth e num be r of do gs inth e br eed in g p ro gr am . Ins te adof i m pr ov in g p ro fit ab il ity , th e la rg er d og bre ed in g act iv ity be cam e m or e ex pe ns iv e an d g en erat edne t l os se s fo r 11 m or e y ears , un ti l 20 10 , when pe ti ti on er’s act iv ity fir stpro du ceda ne t p ro fit . Peti ti on er re po rte d a
ne t p ro fitof $ 3,4 80 for

20 10 fro m

th e sa le of 1 8 p up pi es . The d og bre ed in g act iv ity ge ne rat eda ne t l os s fo r 20 11 , when th e act iv ity ’s exp en se s t ot al ed $2 7,3 69 an d i nc om e am ou nt edto $8 ,32 0. Th ou ghpe ti ti on er m ai nt ai ne d b oo ks
an d re co rd s an d c arri edon th e act iv ity ina bu si ne ss li ke m an ne r, sh e d idno t ch an ge op erat in g m etho ds , eng ag e in ne w tec hn ique s, o r ot he rwis e ab an do n unpr of it ab le m etho ds of t he do g b reed in g a ct iv ity , whi chco ns is te nt ly gen erat ed- 10 -

ne t l os se s. Th is fact ordo es no t s up po rt p et it io ne r’s cl ai m of apro fitob

jecti ve . See s ec. 1 .18 3- 2( b) (1 ), In co m e Tax Reg s. II. Exp ert is e o f th e Tax pa y er o r Her Advi so rs Prep arat io n fo r anact iv ity by ext en si ve study

of i ts acce pt edbu si ne ss an d
eco no m ic pra ct ic es or c on su lt at io n wi th ex pe rts m ay in di cat e th atth e ta xp ay er h as a p ro fitm ot iv e whe re the tax pay er ca rri es on th e act iv ity inacco rd an ce wi th th os e pr act ic es . Sec. 1 .18 3- 2( b) (2 ), In co m e Tax Reg s. Befo re co m

m en ci ng th e d og bre ed in g a ct iv ity , pet it io ne r ha d n o p rio r ex pe rie nc e b reed in g a ni m al s. Pet it io ne r bo ug hthe r fi rs t Gre atPyren ees do g i n 19 91 , th ree years b efo re s he be ga n t he bre ed in g a ct iv ity . Peti ti on er p rep aredfor th e act iv ity

by con su lt in g wi th ex pe rie nc edbre ed ers by tele ph on e, vi si ti ng th ei r ke nn el s, an d s oc ia li zi ng with the m at v ari ou s d og sh ows . She so ug htou t ve te rin ari an s t o l earn ab ou t arti fic ia l i ns em in at io n andto okth e d og s t o ve te rin ari an s wh enco m

pl ic at io ns aro se du rin g p reg na nc ie s, i f th e p up pi es ha d he al th pro bl em s, o r whe n the do gs were i nf ert il e. Pet it io ne r al so co ns ul te d fert il ity ex pe rts . She pa idve te rin ari an s t o p erfo rm he al th cle aran ces on th e d og s be fo re b reed in g. Pe ti ti on er m ai nt ai ne d ali br ary ab ou t d og bre ed in g, g en et ic s, ve te rin ary sc ie nc es , whel pi ng , reh ab il it at io n, an d t he eco no m ic s o f ke nn el bu il di ng an d d og bre ed in g. Pe ti ti on er as se rts th atsh e is kn own worl dwi de as a- 11 -

le ad in g e xp ertinth e GreatPyren ees bre ed , hav in g wri tt enart ic le s an d l ectur edon th e b reedan d a ct edas a n Am eri canKenn el Club ju dg e am on g o th er k enne l cl ub ti tl es sh e h ol ds . Peti ti on er’s d og s h av e ach ie ve d v ari ou s awa rd s fo r pa rti ci pa ti ng in do g s ho ws, i nc lu di ng be stof b reed , bes t i n s ho w, to p wi nn in g Gre atPyren ees of al l t im e, an d p ed ig ree a ward s. Pet it io ne r’s ex pe rti se inth e GreatPy ren ees do g, he r va rio us acco la de s fr om do g s ho ws, an d t he co ns ul ta ti on s wi th ex pe rts supp ort he r cl ai m of apro fitob

jecti ve . See i d. III. Tim e an d Eff

ort Ex pe nd edby the Taxp ay er The factth ata ta xp ay er d ev ot es m uc h p ers on al ti m e an d e ffo rt t o c arrying
on th e act iv ity

m ay in di cat e anin te ntto pro fit , parti cu larly if th e act iv ity do es no t ha ve subs tant ia l p ers on al or r ecre at io na l as pe ct s. See sec . 1.1 83 -2 (b )(3 ), In co m e Tax Reg s. Pet it io ne r as se rts th atsh e sp en t two t o t hr ee h ou rs pe r da y on th e cu st om s br ok erag e b us in es s an d tha t s he sp en t the res t o f he r ti m e atte nd in g t o t he do g br eed in g a ct iv ity

by clean in g k en ne ls , gro om in g d og s, ad m in is te rin g v acci na ti on s, feed in g a ndwate rin g the do gs , nu rs in g s ic k d og s, ca rin g fo r pupp ie s, an d t rai ni ng do gs . Peti ti on er al so att en de d d og sh ows reg ul arl y . Duri ng th e y ear i n i ss ue , 20 07 , pet it io ne r as se rts th atsh e tr av el ed27 ,95 9 m il es m os tl y th ro ug ho utth e North eas t Un it edSta te s t o a tt en d d oz en s o f do g s ho ws.- 12 -

Pet it io ne r ha s d ev ot edm

uc h p ers on al ti m e an d e ffo rt t o c arrying on th e act iv ity . She als o d eri ve d s ub st an ti al recre at io na l b en efi t fr om th e ti m e sh e sp en t with the do gs ; the refo re, we co nc lu de th atth is fact oris ne ut ral . See i d. IV. Exp ect at io n As se ts UsedinActi vi ty May App reci at e in Valu e An ex pe ct at io n tha t the ass et s u se d i n t he act iv ity m ay ap pr eci at e inva lu e is
anin di cat io n o f a p ro fitm ot iv e. Sec. 1 .18 3- 2( b) (4 ), In co m e Tax Reg s. Th e te rm

“pr of it ” en co m pa ss es ap pr eci at io n i n t he va lu e o f as se ts , su chas l an d, u se d i n the act iv ity . Id. Thu s, the tax pa y er m ay in te ndto de riv e a p ro fitfro m th e o pe rat io n o f th e act iv ity , andm ay

als o i nt en d t ha t, ev enif n o p ro fitfro m curren t o pe rat io ns is de riv ed , an o ve ral l p ro fitwil l re su ltwhen ap pr eci at io n i n t he va lu e o f la ndus edin th e act iv ity

is real iz edsi nc e in co m e fro m th e act iv ity

to ge th er wi th th e ap pr eci at io n o f la ndwil l ex ceedex pe ns es of t he op erat io n. Id
. Pet it io ne r as se rts th atsh e p ur ch as edth e p ro pe rty sh e u se s fo r th e d og br eed in g a ct iv ity

with the ex pe ct at io n t ha t i t wo ul d i nc reas e in va lu e an d t ha t the do gs ’ su cces s i n the sh ow ri ng an d years o f he al th cle aran ces wou ldm ak e eac h ge ne rat io n o f pupp ie s m or e v al uabl e th anth e o ne be fo re i t. Pet it io ne r al so co nt en ds th athe r pr op erty ha s n earl y

do ub le d i n v al ue si nc e it s ac qu is it io n. The reco rdco nt ai ns no ob jecti ve ev id en ce o f th e v al ue of p et it io ne r’s real pr op erty or t he va lu e o f th e d og s, an d t he re i s n ot hi ng inth e rec or d t o s ho w th at- 13 -

ap pr eci at io n o f pe ti ti on er’s rea l p ro pe rty or d og s wo ul d b rin g abo utanov eral l pr of itfro m pe ti ti on er’s act iv ity . See i d. Th is lac k o f ev id en ce m ak es itim po ss ib le to co nc lu de th atpe ti ti on er h adanex pe ct at io n t ha t the ass et s u se d i n t he act iv ity wou ldin crea se inva lu e o r to de te rm in e whe th er the y di d i nc reas e in va lu e. See Cars on v. Co m

m is si on er, T.C. Mem o. 1 99 0- 50 8. Th is fact orne ithe r supp orts no r un de rcu ts th e cl ai m

th atpe ti ti on er en te redin to th e act iv ity with apro fitm ot iv e. V. Su cces s i n C arrying On Si m il ar o r Dis si mil ar Act iv it ie s Altho ug h a n a ct iv ity

is unpr of it ab le , th e fac t tha t a t ax pa y er h as pre vi ou sl y co nv ert edsi m il ar ac ti vi ti es fro m unpr of it ab le to pro fit ab le en te rp ris es m ay be an in di cat io n o f a p ro fitm ot iv e wit h re sp ectto th e curren t ac ti vi ty. Sec. 1 .18 3- 2( b) (5 ), In co m e Tax Reg s. Su cces s i n u nr el at edact iv it ie s m ay als o b e in di cat iv e of a pr of itob jecti ve inth e ch al le ng edact iv ity . See Dau gh erty v. Co m m is si on er, T.C. Mem o. 1 98 3- 18 8. Pet it io ne r ha d n o p rev io us ex pe rie nc e in do g b reed in g. Pe ti ti on er d id , ho wev er, s tart h er o wn p ro fit ab le Sch edul e C b us in es s, At lant ic Air. Pet it io ne r’s
su cces s wi th Atl an ti c Airde m on st rat es in it ia ti ve , for es ig ht , andbu si ne ss acu m en th atge ne ral ly leadto su cces s i n o th er b us in es s ac ti vi ti es . See i d. We con cl ud e th is fact oris ne ut ral
.- 14 -

VI. His to ry

of I nc om e o r Los se s A ser ie s o f lo ss es durin g the in it ia l s ta ge of an a ct iv ity m ay no t n eces sa ril y be anin di cat io n tha t the act iv ity is no t en ga ge d i n fo r pr of it . Sec. 1 .18 3- 2( b) (6 ), In co m e Tax Reg s. Lo ss es co nt in ui ng be y on d t he pe rio d c us to m ari ly requ ire d t o m ak e anact iv ity

pro fit ab le , if n otex pl ai nabl e, m ay in di cat e th atth e act iv ity

is no t en ga ge d i n fo r pr of

it . Id. Fo r ev ery y ear e xc ep t 2 01 0 p et it io ne r rep orte d n etlo ss es fro m th e d og br eed in g a ct iv ity

th atsh e u se d t o o ffs etin co m e fro m th e cu st om s b ro ke rag e bu si ne ss . The d og bre ed in g a ct iv ity ge ne rat edsubs tant ia l l os se s i n c om pa ris on with g ro ss rece ip ts , andth e rec or d d oe s n otsh ow tha t p et it io ne r m ad e aneffo rt t o cu t l os se s o r im

pr ov e th e p ot en ti al forga in . Peti ti on er h adbe enen ga ge d i n d og br eed in g fo r 16 y ears when sh e rep orte d h er fi rs t n etpro fitfro m th e act iv ity

in 20 10 . In 2 01 1 the act iv ity was a ga inunpr of

it ab le . Peti ti on er co nt en ds th atth e lo ss es su st ai ne d wer e due to in fert il ity pro bl em s b ey on d h er co nt ro l. The
m ag ni tu de of t he act iv ity ’s lo ss es inco m pa ris on with i ts rev enue s ar e n ot ex pl ai ne d a way

by the in fert il ity

pro bl em s. Th e se rie s o f lo ss es an d t he ir
m ag ni tu de is anin di cat io n tha t p et it io ne r di d n otha ve a pr of itm ot iv e wit h re sp ect to th e d og bre ed in g a ct iv ity . See Bu rg er v . Comm is si on er, 8 09 F.2dat 3 60
.- 15 -

Acco rd in gl y , th is fact ordo es no t s up po rt apro fitob jecti ve . See s ec. 1 .18 3- 2( b) (6 ), In co m e Tax Reg s. VII. Am ou ntof Oc cas io na l Pr of it s The am ountof p ro fit s i n re la ti onto th e am ou ntof l os se s i nc urredm ay pr ov id e u se fu l cr it eri a in de te rm in in g t he tax pay er’s i nt en t. Sec . 1.1 83 -2 (b )(7 ), In co m e Tax Reg s. Anoc cas io na l s m al l p ro fitfro m anact iv ity

ge ne rat in g l arg e lo ss es is no t g en eral ly det erm in at iv e th atth e act iv ity is en ga ge d i n fo r pr of

it . Id. Pet it io ne r m ad e h er fi rs t p ro fitinth e d og bre ed in g a ct iv ity in20 10 , 16 y ears aft er s he be ga n i t. The ne t p ro fitof $ 3,4 80 in20 10 was s m al l i n c om pa ris on to th e lo ss es pe ti ti on er re po rte d fr om th e d og bre ed in g a ct iv ity forall ot he r y ears . This fact or do es no t s up po rt p et it io ne r’s cl ai m th atsh e en te redin to th e d og bre ed in g act iv ity with a n i nt en t t o p ro fit . See i d. VIII. Fi na nc ia l St atus of t he Taxp ay er The factth atth e ta xp ay er d oe s n otha ve subs tant ia l i nc om e fro m so ur ces ot he r th anth e act iv ity

m ay in di cat e th atth e act iv ity

is en ga ge d i n fo r pr of

it . Sec. 1.1 83 -2 (b )(8 ), In co m e Tax Reg s. Subs tant ia l i nc om e fro m ot he r so ur ces m ay in di cat e th atth e act iv ity

is no t en ga ge d i n fo r pr of it , esp eci al ly if th ere a re pe rs on al or r ecre at io na l el em en ts in vo lv ed . Id.- 16 -

Fo r 20 07 pe ti ti on er re po rte d ane t p ro fitof $ 13 0,8 72 fro m he r cu st om s br ok erag e b us in es s. Pet it io ne r rep orte d n etpro fit s fr om th e cu st om s b ro ke rag e o f $1 55 ,46 3, $ 16 2,5 90 , $1 15 ,24 9, an d $ 76 ,58 0 fo r 20 05 , 20 06 , 20 08 , and20 09 , res pe ct iv el y . The p ot en ti al for tax be ne fit s fr om

th e cl ai m eddo g b reed in g a ct iv ity lo ss es was s ub st an ti al . Dedu ct in g t he lo ss es ge ne rat edby the do g b reed in g act iv ity fro m pe ti ti on er’s i nc om e fro m th e cu st om s b ro ke rag e b us in es s g reat ly reduc edth e aft er-t ax co stof t he act iv ity to pe ti ti on er. Thi s fa ct ordo es no t s up po rt a p ro fitob

jecti ve . See i d. IX. Elem en ts of P ers on al Ple as ur e The pre se nc e o f pe rs on al m ot iv es incarry in g o n an a ct iv ity m ay in di cat e th atth e act iv ity

is no t en ga ge d i n fo r pr of it , esp eci al ly whe re the re ar e rec reat io na l
orpe rs on al ele m en ts in vo lv ed . Sec. 1 .18 3- 2( b) (9 ), In co m e Tax Reg s. Th e fac t th atth e ta xp ay er d eri ve s p ers on al pl eas ur e fro m en ga gi ng inth e act iv ity

is no t su ffi ci en t t o c au se th e act iv ity to be cla ss ifi edas n oten ga ge d i n fo r pr of itif the act iv ity is infacten ga ge d i n fo r pr of itas e vi de nc edby oth er fa ct or s. Id
. The reco rdin di cat es pe ti ti on er h as anin te res t i n o wni ng , rai si ng , and sh owi ng GreatPyren ees do gs . Peti ti on er h adanin te res t i n d og s s tarti ng at a ge fiv e whe n s he go t h er fi rs t p ur eb reddo g a s a C hr is tm as pre se nt . Alth ou gh de riv in g p ers on al sat is fact io n fr om anact iv ity

do es no t n eces sa ril y

in di cat e th e- 17 -

ab se nc e o f anin te ntto pro fit , “ whe re the po ss ib il ity forpro fitis sm al l (g iv enall th e o th er fa ct or s) an d the po ss ib il ity forgra ti fic at io n i s s ub st an ti al , itis cle ar tha t th e la tt er p os si bi li ty con st itut es th e p rimary m ot iv at io n fo r th e act iv ity .” Sm ith v
. Co m m is si on er, T.C. Mem o. 1 99 7- 50 3 (quo ti ng Burg er v . Comm is si on er, T.C. Mem o. 1 98 5- 52 3) , aff’d wit ho utpubl is he d o pi ni on , 18 2 F .3d92 7 (9 th Cir . 19 99 );
se e al so sec . 1.1 83 -2 (b )(9 ), In co m e Tax Reg s. Th is fact or do es no t s up po rt a pr of itob jecti ve . See s ec. 1 .18 3- 2( b) (9 ), In co m e Tax Reg s. Co nc lu si on Co ns id eri ng all of t he ab ov e-d is cu ss edob jecti ve fact s an d c irc um st an ces an d the reg ul at ory

fact or s m os t re le va nt , we con cl ud e th atpe ti ti on er l ack edth e requi si te “ actua l an d h on es t o bjec ti ve of m ak in g apro fit ” with re sp ectto th e d og br eed in g a ct iv ity

in20 07 . See Drei cer v . Comm is si on er, 7 8 T.C. at64 5. Acco rd in gl y , we ho ldth atth e d og bre ed in g a ct iv ity was “ no t en ga ge d i n fo r pr of it ” wit hi n the m ean in g o f se ct io n 1 83 du rin g t he y ear i n i ss ue . To re fle ctth e fo reg oi ng , Deci si on wil l b e en te red fo r res po nd en t.