                         T.C. Memo. 2001-117



                       UNITED STATES TAX COURT



                    RUTH N. NELSON, Petitioner v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent


     Docket No. 5391-97.                         Filed May 17, 2001.


     Robert C. Barrett, Jr., for petitioner.

     Candace M. Williams, for respondent.



                         MEMORANDUM OPINION


     COUVILLION, Special Trial Judge: Respondent determined

deficiencies of $5,838 and $4,349 in petitioner's Federal income

taxes for 1992 and 1993, respectively, and accuracy-related

penalties under section 6662(a) of $1,167 and $869 for those

years.1


     1
          Unless otherwise indicated, all section references are to
                                                     (continued...)
                                - 2 -


     The issues for decision are: (1) Whether, for 1992 and 1993,

an activity conducted by petitioner known as the Baton Rouge

Volleyball Club constituted an activity not engaged in for profit

under section 183(a), and, if so, (2) whether petitioner is

liable for the accuracy-related penalty under section 6662(a) for

negligence or disregard of rules or regulations for each of the

years at issue.   An ancillary issue is whether, for the year

1993, respondent's computational adjustment to petitioner's State

income tax refund is correct.

                            Background

     In 1970, petitioner received a bachelor of arts degree in

physical education and psychology from the University of Northern

Colorado.   Petitioner's particular focus in physical education is

with the sport of volleyball.    Petitioner participated in women's

volleyball while in college.    She was a member of the U.S.

Women's National Volleyball Team during the early 1970's.      In

1973, petitioner received a master of science degree in physical

education from George Williams College in Downers Grove,

Illinois.   Also, from 1970 through 1972, petitioner served as

head coach of the women's volleyball team, head coach of the

men's tennis team, and physical education instructor at George


     1
      (...continued)
the Internal Revenue Code in effect for the years at issue.      All
Rule references are to the Tax Court Rules of Practice and
Procedure.
                               - 3 -


Williams College.   In both years of coaching at George Williams

College, petitioner's women's volleyball teams participated in

National Championship tournaments.

     From 1974 through 1981, petitioner was the head women's

volleyball coach, physical education instructor, adviser to the

men's volleyball team, and the head women's tennis coach (1974-

1977) at the University of Houston in Houston, Texas.   Also

during this time period, petitioner served as president of the

Houston Stars Volleyball Club and director of the organization's

junior and coaches development programs conducting camps and

clinics.

     In 1981, petitioner accepted the opportunity to move to

Baton Rouge, Louisiana, and serve as head coach of the women's

volleyball team at Louisiana State University (LSU).    Petitioner

coached at LSU through 1985 and also served as an adviser to the

men's volleyball team, as physical education instructor, and as

supervisor of student teachers.   Also during 1981, petitioner

began operating the Baton Rouge Volleyball Club (BRVC), which is

the subject activity in this case.

     In 1985, petitioner left LSU but continued to live in Baton

Rouge and operate BRVC.   Around this time, petitioner began

performing some consulting work for the women's volleyball

program at the University of Iowa in Iowa City, Iowa.   In 1987,

petitioner began a brief stint as the head coach of the Dallas
                               - 4 -


Belles women's professional volleyball team in Dallas, Texas.

Also, from 1985 through 1988, petitioner served as a volleyball

color analyst for Iowa Public Television in Des Moines, Iowa.

During 1988 and 1989, petitioner served as a consultant for

various volleyball, sporting, and marketing organizations,

including the Institute for International Sports in Kingston,

Rhode Island, the International Players Promotion of Mulhouse,

France, Plyometric, Inc., and Acadian Advertising.

     During 1989, petitioner moved to Iowa City, Iowa, where she

served as head women's volleyball coach, adviser to men's

volleyball, and physical education instructor at the University

of Iowa from 1989 through 1991.    Also during 1989, petitioner

served as head coach for the Springfield Junior Volleyball Club

in Springfield, Illinois.   During 1990 and 1991, petitioner

served as an instructor in volleyball coaches' certification for

the U.S. Volleyball Association.

     Petitioner moved to Merrifield, Virginia, during 1991 to

begin employment with Special Olympics International (SOI) in

Washington, D.C.   Petitioner was employed by SOI during both of

the years at issue.   Petitioner served in the following

capacities during the following years with SOI:    1991-1992,

sports marketing manager; 1992-1993, sports marketing director;

and 1993-1995 sports/corporate marketing director.    Petitioner
                               - 5 -


had previously served as a volleyball consultant for SOI from

1985 through 1991.

     In 1995, petitioner returned to Texas to begin working as

director of nonprofit marketing for Intellicall, Inc.,

IntelliMarketing Group (Intellicall) in Carrollton, Texas.   Due

to ongoing health problems, petitioner was forced to leave her

employment with Intellicall during 1996.   From that time until

the date of trial in this case, petitioner has operated BRVC as

her primary source of income in lieu of obtaining employment

elsewhere.   Petitioner operated BRVC in some capacity during each

year since its 1981 formation, including those years of other

work engagements following her 1985 departure from LSU.

     During the course of her career, petitioner has received

various professional honors and awards.    Also, petitioner has had

the opportunity to coach women's volleyball players who have been

selected to play on U.S. Olympic teams and various professional

women's volleyball teams.   During 1984, petitioner toured Europe

with the U.S. Junior Women's National Volleyball Team as a coach.

Also, petitioner served as a technical expert to the 1984 U.S.

Olympic Women's Volleyball Team.

     Petitioner began operating BRVC in 1981 as a means of

cultivating the talents of young volleyball players so that they

could eventually play volleyball at college and professional

levels.   Through BRVC, petitioner conducted numerous volleyball
                                - 6 -


camps and clinics for junior high and high school-aged children,

often conducting 50 or more camps during the summer months.

Petitioner charged an admission fee for camps and also sold

various volleyball paraphernalia in conjunction with the camps

and clinics.    In conjunction with a shoe company known as Aspri,

petitioner designed and marketed her own volleyball shoe, the

Ruth Nelson Sideout, which was sold through BRVC.   Her volleyball

shoe generated both sales and endorsement revenue for BRVC.

     BRVC also conducted what petitioner referred to as

membership programs, through which BRVC sponsored youth

volleyball clubs to travel around the country and participate in

various tournament competitions.   BRVC received sponsorship money

for its activities from various commercial organizations.

Petitioner also made various public appearances and participated

in a variety of speaking engagements and consulting services

through BRVC.   Also, through BRVC, petitioner produced a video

for coaching girls' and women's volleyball, for which petitioner

was paid royalties.   From 1986 through the date of trial in this

case, petitioner reported the following income, expenses, and net

profits/losses from the operation of BRVC:2


     2
       The record does not include petitioner's income tax
returns for any other years of BRVC operation; i.e., 1981 through
1985 and 1995 through 1997. Counsel for respondent stated that
tax return information for the years 1981 through 1985 was no
longer available; however, no explanation was given for the lack
                                                   (continued...)
                                   - 7 -



     Year         Gross Income             Expenses    Profit/(Loss)

     1986         $47,970                  $45,970     $  2,000
     1987          49,432                   49,461      (     29)
     1988          44,339                   65,437      (21,098)
     1989          40,309                   66,780      (26,471)
     1990          13,364                   36,564      (23,200)
     1991           9,000                   20,368      (11,368)
     1992           -0-                     20,106      (20,106)
     1993           2,598                   19,667      (17,069)
     1994           1,638                   14,125      (12,487)
     1995           ---                      ---          ---
     1996           ---                      ---          ---
     1997           ---                      ---          ---
     1998          13,188                   13,156            32


     Around 1986, petitioner began to experience what she would

come to realize was the beginning of a series of unfortunate

circumstances that would affect both her professional and

personal lives.    In 1986, the shoe company, Aspri, that had been

paying endorsement moneys to BRVC for the Ruth Nelson Sideout,

filed for bankruptcy.       Around May or June of 1987, petitioner

suffered a serious back injury and underwent her first back

surgery in 1988.    Consequently, petitioner was forced to hire

additional help to perform some of the duties connected with BRVC

that petitioner was unable to perform because of her injury and

recuperation.

     Petitioner relocated to Iowa during 1989 to accept a

position as head coach of women's volleyball at the University of


     2
      (...continued)
of return information for the years 1995 through 1997.
                               - 8 -


Iowa.   Although it presented a wonderful career opportunity for

petitioner, the unfortunate result of that move was the necessity

of petitioner to "begin at square one" in developing and

promoting a BRVC camp, clinic, and membership program in the Iowa

area.   Soon after her move, petitioner began experiencing

additional health problems that required hospitalization during

the early part of 1990.   During 1991, petitioner had surgery in

connection with these health problems.   As a result, petitioner

began to pare down the camp, clinic, and membership program

activities of BRVC and started to focus on performing consulting

work for various schools and organizations through BRVC.

Petitioner could easily perform consulting work from home by

viewing videotapes and conducting instructive sessions either in

her home or by telephone conference.

     When petitioner began her employment with SOI in 1991, her

work there involved developing and maintaining relationships with

companies for the sponsorship of various sport-specific

activities.   SOI did not place any limitation on petitioner's

engaging in any outside business activities, but, rather, SOI

encouraged petitioner to continue the activities of BRVC in order

to supplement her wages from SOI.   Consequently, petitioner

continued to perform consulting work through BRVC.

     In April 1992, SOI sent petitioner to Austria to develop a

working relationship between SOI and Adidas.   Also, petitioner's
                                 - 9 -


duties included interviewing and hiring advertising agencies in

Austria to raise money for Special Olympics.    Unfortunately, in

June 1992, petitioner suffered another injury to her back that

required hospitalization and physical therapy.    Nevertheless,

petitioner spent approximately 9 months working for SOI in

Austria between April 1992 and April 1993, making brief visits to

the United States to visit her doctor about her most recent back

injury.

     Due to her back injuries, petitioner was classified as

totally disabled, making her eligible for workmen's compensation

benefits, and began receiving disability payments in August 1993.

Petitioner underwent a second back surgery in February 1994 and

continued receiving workmen's compensation disability payments

through November of that year.    Petitioner's doctor advised her

to consider a change in professional lifestyle to one that would

not place as much pressure on her back as what she experienced

from volleyball camps, clinics, and membership programs for

tournament play.   Additionally, it appeared to petitioner that

the sporting industry was undergoing a transformation in which

consulting activities would be more lucrative than camps,

clinics, and membership programs.    Thus, petitioner abandoned

thoughts of rejuvenating the camp, clinic, and membership

programs of BRVC and began to focus primarily on consulting work,
                               - 10 -


which could be conducted largely by telephone conversations, the

viewing of videotapes, and so forth.

       Petitioner accepted a job with Intellicall in 1995 because

that company provided petitioner with a flexible work schedule

that was conducive to her health condition.      For example,

petitioner worked 4 hours at the office and 4 hours at home each

day.    At Intellicall, petitioner was involved in promoting a

prepaid phone card program in the nonprofit sports marketing

area.    Petitioner's background in fund raising and sports

marketing was an asset, and, additionally, Intellicall did not

restrict petitioner's ability to conduct outside business

activities.    However, petitioner worked for only 1 year and was

forced to return to total disability status in 1996.      Petitioner

underwent her third back surgery in 1997.

       Petitioner realized that, in order to generate a profit, it

would be necessary to make a dramatic change to the business

activities conducted through BRVC that would be suitable with her

seemingly chronic health problems.      Consequently, petitioner

began a prepaid phone card marketing and promotion business

through BRVC.    Through this activity, as best as the Court

understands it, petitioner located corporate sponsors in the

sports field to pay BRVC for the privilege of having their

company's products or services advertised on the face of prepaid

phone cards, which, in turn, petitioner sold to the general
                                - 11 -


public through BRVC.    Petitioner created an internet website to

sell such phone cards online.    Additionally, petitioner, through

BRVC, represented various athletes and artists and solicited

corporations to sponsor the athletes or artists in exchange for

endorsements of products or services.    An image of the athlete or

artist (or their artwork) was depicted on the face of a prepaid

phone card, which was sold to the general public by BRVC.      BRVC

retained a portion of the phone card sales price and received a

portion of any endorsement fee.    In some cases, BRVC also

received a percentage of the profits from the sales of artwork by

a sponsored artist.    At the time of the trial, petitioner

continued to conduct this prepaid phone card activity through

BRVC and had begun selling the official phone card for USA

Volleyball.

     On her Federal income tax return for 1992, petitioner

reported wage income of $54,118 from SOI, taxable interest income

of $2,757, and a taxable State income tax refund of $245.

Petitioner also reported a $3,000 capital loss carryover, a

$1,940 loss from rental real estate, and a $20,106 loss, on

Schedule C, Profit or Loss From Business (Schedule C), from the

operation of BRVC.    Thus, petitioner reported total income and

adjusted gross income of $32,074 for 1992.    On Schedule C,

petitioner reported zero gross receipts and total expenses of

$20,106, resulting in the $20,106 Schedule C loss.
                              - 12 -


     On her 1993 Federal income tax return, petitioner reported

$38,029 in wage income from SOI, $2,225 in taxable interest

income, and a $729 taxable State income tax refund.     Petitioner

also reported a $3,000 capital loss carryover, a $1,817 loss from

rental real estate, and a $17,069 Schedule C loss from the

operation of BRVC.   Thus, petitioner reported total income and

adjusted gross income of $19,097 for 1993.     On Schedule C,

petitioner reported $2,598 in gross receipts and total expenses

of $19,667, resulting in the reported $17,069 Schedule C loss.

     In the notice of deficiency, respondent made the following

adjustments to income for the years at issue:


     Adjustment                     1992             1993

     Hobby income                    ---             $ 2,598
     Itemized deductions            $ 4,329             (914)
     Prior year refund               –--               1,227
     Schedule C profit/loss          20,106           17,069
     Standard deduction              (3,600)          –--

       Total                        $20,835          $19,980


These adjustments resulted in deficiencies of $5,838 and $4,349,

respectively, for 1992 and 1993.   Respondent also determined that

petitioner was liable for the accuracy-related penalty under

section 6662(a) for negligence or disregard of rules or

regulations of $1,167.60 for 1992 and $869.80 for 1993.
                               - 13 -

                             Discussion

     For 1992, respondent's disallowance of $4,329 in itemized

deductions and corresponding allowance of a standard deduction of

$3,600 are computational adjustments that will be resolved by the

Court's holding on whether BRVC was an activity not engaged in

for profit for that year.   Also, for 1993, respondent's

determination of $2,598 in hobby income and allowance of an

additional $914 in itemized deductions3 are computational

adjustments that will be resolved by the Court's holding on

whether BRVC was an activity not engaged in for profit for 1993.

     Additionally, for 1993, respondent determined that

petitioner realized income from an unreported State income tax

refund of $1,227.    Respondent contends that this adjustment is

computational based on the determination for 1992 that BRVC

constituted an activity not engaged in for profit.   The Court

does not agree with respondent's treatment of this item for the

following reasons.

     In order for a taxpayer to be required to include a State

income tax refund in income, the taxpayer must have received a


     3
          Due to the increase in petitioner's adjusted gross
income, petitioner's itemized deductions for medical and dental
expenses were phased out entirely. However, in connection with
BRVC, petitioner was allowed an additional $2,598 in
miscellaneous itemized deductions subject to the 2-percent of
adjusted gross income limitation of section 67(a)(which was also
affected by the increase in adjusted gross income). This
resulted in a $914 net increase in petitioner's 1993 itemized
deductions.
                              - 14 -

tax benefit from the deduction of State income taxes in a prior

year; i.e., the year for which the refund was received.     See sec.

111(a).   Moreover, a taxpayer is not required to include in

income any portion of a refund that did not result in a reduction

of taxes in the year the State income taxes were deducted.       See

sec. 1.111-1(a), Income Tax Regs.    Petitioner complied with this

rule of law on her 1992 and 1993 Federal income tax returns.      On

her 1992 Federal income tax return, petitioner deducted $2,658 on

Schedule A for State income taxes.     During 1993, petitioner

received a $1,227 refund of her 1992 State income taxes.     On her

1993 Federal income tax return, petitioner reported $729 as a

taxable refund of State income taxes.     Petitioner reported only

$729 of the total refund in her 1993 income because her itemized

deductions for 1992 exceeded her allowable standard deduction for

that year by only $729.   Thus, the maximum tax benefit received

by petitioner in 1992 for the deduction of State income taxes was

$729 and that is the amount she was required to and did in fact

report as income on her 1993 return.4

     When respondent determined that BRVC was an activity not

engaged in for profit for 1992, respondent computationally

disallowed petitioner's 1992 itemized deductions in their



     4
          See sec. 1.111-1(b)(2)(ii) and (3), Income Tax Regs.;
Prewitt v. Commissioner, T.C. Memo. 1995-24. Respondent adopted
this rationale in Rev. Rul. 93-75, 1993-2 C.B. 63.
                              - 15 -

entirety and, in lieu thereof, allowed petitioner the standard

deduction for that year.   Thus, following respondent's

adjustments for 1992, petitioner did not realize any tax benefit

in 1992 from the deduction of State income taxes, and,

consequently, petitioner would not be required to include any of

her 1992 State income tax refund in her 1993 income.5     Rather

than including an additional amount in petitioner's 1993 income,

respondent should have reduced petitioner's 1993 income by $729,

the amount of State income tax refund that petitioner reported as

taxable income on her 1993 return.

     Consequently, if the Court sustains respondent's

determination that BRVC was an activity not engaged in for profit

in 1992, thus upholding the disallowance of itemized deductions

for that year, petitioner would not be required to include any

State income tax refund in her 1993 income.6   Thus, if respondent

is sustained on the primary issue in this case, a computation




     5
          It is notable that, even   if there had been an increase
in 1992 itemized deductions (which   did not happen in this case),
respondent should have included no   more than $498 in petitioner's
1993 income ($1,227 - $729 = $498)   because petitioner had
reported $729 on her 1993 return.
     6
          On the other hand, if petitioner prevails on the issue
of whether BRVC was an activity not engaged in for profit, this
adjustment would be remedied as a result thereof because
respondent characterizes it as a computational adjustment flowing
from the determination that BRVC was an activity not engaged in
for profit.
                                - 16 -

under Rule 155 will be required to remedy the erroneous

adjustment made by respondent.7

     The principal issue is whether petitioner's Baton Rouge

Volleyball Club activity was an activity not engaged in for

profit under section 183(a) for 1992 and 1993.    Section 183(a)

provides generally that, if an activity is not engaged in for

profit, no deduction attributable to such activity shall be

allowed.   Section 183(b)(1), however, provides that deductions

that are allowable without regard to whether the activity is

engaged in for profit shall be allowed.    Section 183(b)(2)

further provides that deductions that would be allowable only if

the activity were engaged in for profit shall be allowed, "but

only to the extent that the gross income derived from such

activity for the taxable year exceeds the deductions allowable by

reason of" section 183(b)(1).

     Section 183(c) defines an activity not engaged in for profit

as "any activity other than one with respect to which deductions

are allowable for the taxable year under section 162 or under

paragraph (1) or (2) of section 212."    The Court's inquiry is

directed to whether the taxpayer engaged in the activity with the


     7
          In this instance, petitioner's income determined in the
notice of deficiency should be reduced by $1,956; i.e., $1,227
for the erroneous increase of income in the notice of deficiency
and $729 for the amount reported by petitioner on her 1993
return.
                                - 17 -

"actual and honest objective of making a profit".      Ronnen v.

Commissioner, 90 T.C. 74, 91 (1988); Dreicer v. Commissioner, 78

T.C. 642, 645 (1982), affd. without opinion 702 F.2d 1205 (D.C.

Cir. 1983).   The taxpayer's expectation of profit need not be a

reasonable one but there must be a good faith objective of making

a profit.    See Dreicer v. Commissioner, supra at 645; sec. 1.183-

2(a), Income Tax Regs.   The determination of whether the

requisite profit objective exists is based on all the surrounding

facts and circumstances.   See Golanty v. Commissioner, 72 T.C.

411, 426 (1979), affd. without published opinion 647 F.2d 170

(9th Cir. 1981); sec. 1.183-2(b), Income Tax Regs.      Greater

weight is to be given to the objective facts than the taxpayer's

mere statement of his intent.    See Dreicer v. Commissioner, supra

at 645; sec. 1.183-2(a), Income Tax Regs.      The taxpayer has the

burden of proving the requisite intention and that respondent's

determination that the activity was not engaged in for profit is

incorrect.    See Rule 142(a); Welch v. Helvering, 290 U.S. 111

(1933).

     Although the question of the taxpayer's profit motive is a

subjective one, objective indicia may be considered to establish

the taxpayer's true intent.   See sec. 1.183-2(a), Income Tax

Regs.   Section 1.183-2(b), Income Tax Regs., sets forth a

nonexclusive list of nine objective factors to be considered in

ascertaining the taxpayer's intent.      These factors are:   (1) The
                              - 18 -

manner in which the taxpayer carries on the activity; (2) the

expertise of the taxpayer or his advisers; (3) the time and

effort expended by the taxpayer in carrying on the activity; (4)

the expectation that the assets used in the activity may

appreciate in value; (5) the success of the taxpayer in carrying

on other similar or dissimilar activities; (6) the taxpayer's

history of income or losses with respect to the activity; (7) the

amount of occasional profits, if any; (8) the financial status of

the taxpayer; and (9) the elements of personal pleasure or

recreation involved in the activity.    These factors are not

merely a counting device where the number of factors for or

against the taxpayer is determinative but, rather, all facts and

circumstances must be taken into account, and more weight may be

given to some factors than to others.    Cf. Dunn v. Commissioner,

70 T.C. 715, 720 (1978), affd. 615 F.2d 578 (2d Cir. 1980).     Not

all factors are applicable in every case, and no one factor is

controlling.   See Abramson v. Commissioner, 86 T.C. 360, 371

(1986); Allen v. Commissioner, 72 T.C. 28, 34 (1979); sec. 1.183-

2(b), Income Tax Regs.

     The first factor is the manner in which petitioner conducted

BRVC.   The Court considers that petitioner conducted the

activities of BRVC in a businesslike manner.    She maintained a

separate checking account for BRVC and retained canceled checks,

credit card statements, and receipts to verify business expenses.
                               - 19 -

She admitted that she occasionally deposited personal funds into

the BRVC checking account when BRVC experienced a negative cash-

flow, but this fact does not indicate that petitioner lacked

profit motive.    Rather, the Court views this as providing the

necessary capital to keep the activity going.

     Petitioner also paid some personal expenses out of the BRVC

checking account and had some credit cards that she used for both

business and personal expenses.    However, through receipts,

canceled checks, and credit card statements, petitioner kept

track of which expenses were business as opposed to personal, and

petitioner made no attempt to deduct personal expenses for income

tax purposes.    Petitioner sought the advice and services of a

certified public accountant in the preparation of her Federal

income tax returns during the years of BRVC operation.    For the

years at issue, no adjustments were made by respondent with

respect to the expenses claimed on the ground that such claimed

expenses were personal.

     Moreover, for approximately the first 10 years of BRVC

operation, petitioner kept ledgers in connection with the

volleyball camps, clinics, and membership programs for tournament

play conducted by BRVC.    Petitioner stopped maintaining these

ledgers around 1992, subsequent to the cessation of camps,

clinics, and membership programs through BRVC.    After 1992,

petitioner maintained computer records in connection with the
                               - 20 -

income and expenses of BRVC.   While petitioner's record-keeping

procedures may not have been as meticulous as might be desired,

they were sufficient to keep an accurate account of BRVC income

and expenses.

     The record reflects that petitioner expended great effort to

advertise and promote the camps, clinics, and membership programs

for tournament play conducted through BRVC.   Indeed, an activity

such as BRVC is not likely to generate gross income in excess of

$40,000 for 5 or more successive years8 without a concerted

effort at promotion.   Additionally, through BRVC, petitioner

endeavored to develop and market a volleyball shoe, the Ruth

Nelson Sideout, in collaboration with Aspri shoe company.

Following the bankruptcy of Aspri, petitioner's move to Iowa, a

series of health problems, and her beginning realization that

camps, clinics, and membership programs were no longer going to

provide potential profits for BRVC, petitioner began to focus the

activities of BRVC in the direction of consulting services.

Later, during the mid-1990's petitioner attempted another

transformation of the activities of BRVC by entering into the

prepaid telephone card promotion industry.    It is clear that

petitioner developed a pattern of changing the activities of BRVC


     8
          Although the record contains no Federal income tax
return information for years prior to 1986, the record indicates
that BRVC generated gross income of approximately $50,000 for
each of the years 1984 and 1985.
                               - 21 -

in an attempt to make the business more profitable.    Despite the

fact that petitioner's efforts in this regard have met with

limited success, they highlight petitioner's profit motive in

connection with BRVC.

     The second factor is the expertise of petitioner and her

advisers, if any.   Prior to forming and operating BRVC,

petitioner had many years of education and experience in playing

and coaching volleyball at varying levels of difficulty.    Also,

petitioner had previous experience with sports camps, clinics,

and tournament play.    Petitioner's experience in this field, no

doubt, led to the relatively high gross income generated by BRVC

in the mid- to late-1980's.    Also, petitioner's vast experience

in the world of volleyball assisted her in developing and

marketing the Ruth Nelson Sideout in conjunction with Aspri.

     When BRVC began experiencing a decrease in revenues,

petitioner sought the advice of a business consultant and

attended various seminars in an attempt to make BRVC more

profitable.   Finally, prior to shifting BRVC activities into the

marketing and sales of prepaid phone cards, petitioner spent a

year working in this field for Intellicall, learning the nuances

of this relatively new industry.    Petitioner's background and

experience in volleyball and sports marketing, as well as her

attempts to attain knowledge and advice in areas she lacked,
                               - 22 -

indicated petitioner's ability and desire to derive a profit from

her BRVC activity.

     The third factor is the time and effort expended by

petitioner on the activities of BRVC.    During the first several

years of operation, petitioner spent at least 20 hours per week

conducting the activities of BRVC such as developing camps,

clinics, and membership programs and attending speaking

engagements, while simultaneously coaching and recruiting

athletes for LSU.    It was possible for petitioner to devote this

amount of time to BRVC because much of the camp, clinic, and

tournament activity was conducted on weekends and during summers.

Likewise, many of petitioner's speaking engagements and

consulting activities conducted through BRVC were performed

during the evenings and on weekends.    Moreover, petitioner's

employment at LSU benefited BRVC in that petitioner was allowed

to use the school's facilities to conduct many activities,

including camps and clinics, thus saving BRVC the expense of

renting appropriate facilities.   Rather than hindering the

operations of BRVC, petitioner's employment at LSU proved

complementary thereto.

     From 1986 through 1988, petitioner devoted nearly all of her

time to BRVC, and the substantial majority of her income in those

years was derived from this activity.    During her years in Iowa,

i.e., 1989 through 1991, petitioner devoted at least 20 to 30
                                - 23 -

hours per week on the activities of BRVC.    Due to the nature of

the activities conducted through BRVC during those years, i.e.,

mostly consulting services, petitioner was able to promote and

conduct the same activities simultaneously with the duties of her

employment.

     Although petitioner was employed by SOI during the years at

issue, she devoted most of her free time to developing contacts

useful to the activities of BRVC.    Additionally, due to the

nature of petitioner's work with SOI, she was able to utilize her

duties at SOI to enhance the potential success of BRVC.    For

example, through SOI, petitioner was able to make many

professional contacts in the world of volleyball and sports

marketing that held the potential for enhancing the operations

and profitability of BRVC.

     Respondent contends that petitioner's full-time employment

during various years of BRVC operation, such as with LSU, the

University of Iowa, and SOI, precluded petitioner from devoting

sufficient time to BRVC so that the activity could rise to the

level of a trade or business.    The Court disagrees.   This Court

has previously recognized the common-sense notion that a taxpayer

may engage in more than one trade or business simultaneously.

See Gestrich v. Commissioner, 74 T.C. 525, 529 (1980), affd.

without published opinion 681 F.2d 805 (3d Cir. 1982); Sherman v.

Commissioner, 16 T.C. 332, 337 (1951).    Moreover, this Court has
                              - 24 -

stated that a taxpayer's engaging in full-time employment in

addition to conducting a profit-seeking activity can be a

positive factor illustrating the taxpayer's motivation, rather

than a negative element as often argued by respondent when a

taxpayer devotes time to other activities.    See Dickson v.

Commissioner, T.C. Memo. 1986-182.     In the instant case, the

Court views petitioner's full-time employment history as a

complement to the activities of BRVC rather than a negative

factor.   The Court is satisfied that petitioner expended

sufficient time and efforts on BRVC during the years at issue and

prior and subsequent thereto to favor a profit motive in

connection therewith.

     Respondent contends that the fourth factor, i.e., the

expectation that the assets used in the activity may appreciate

in value, weighs against petitioner.    Respondent argues that BRVC

owned no assets other than a computer, fax machine, two VCR's,

and some sporting equipment, all of which were depreciating

assets.   Thus, respondent argues, since petitioner had no

prospect of realizing any appreciation of BRVC assets, this is an

indication that petitioner lacked a profit objective.    The Court

finds this argument to be unpersuasive.    There exist many

business activities the nature of which do not require and are

not conducive to the ownership of property that may appreciate in

value, and BRVC was one such activity.    The Court finds that the
                              - 25 -

fourth factor is not directly relevant in the instant case.

Moreover, insofar as this factor is relevant, it would weigh in

favor of petitioner.   The fact that BRVC purchased and frequently

utilized the aforementioned equipment indicates an effort by

petitioner to operate BRVC in a professional manner.

     The fifth factor examines whether the taxpayer experienced

success in carrying on other similar or dissimilar activities.

Although there is some indication in the record that petitioner

operated a similar activity sometime prior to 1981, the record is

devoid of any details regarding the profitability or manner and

length of conduct of this business.    Thus, the Court finds that

this factor is inapplicable to the instant case.

     The sixth factor is the history of the activity's income and

losses.   Although BRVC sustained losses for nearly each year of

its operation, the gross income of BRVC was consistently in the

40- to 50-thousand dollar range for the years 1986 through 1989.

Although no return information was submitted for years prior to

1986, the record indicates that BRVC generated gross income close

to $50,000 for each of the years 1984 and 1985.    BRVC gross

income dropped to approximately $13,000 in 1990, $9,000 in 1991,

and zero in 1992.   Respondent contends that this dramatic decline

in gross income, coupled with the history of losses, indicates

that petitioner lacked profit motive in the operation of BRVC.

The Court disagrees.
                               - 26 -

     Losses sustained because of unforeseen or fortuitous

circumstances beyond the control of the taxpayer do not indicate

that an activity is not engaged in for profit.    See sec. 1.183-

2(b)(6), Income Tax Regs.    The Court does not believe that the

diminishing of BRVC's gross income, nor the history of losses,

can be attributed to a lackadaisical attitude on the part of

petitioner with respect to the operation of BRVC.    In other

words, the income and loss problems of BRVC did not result from a

lack of profit motive by petitioner.    Rather, the decrease in

BRVC gross income for 1990 and subsequent years is readily

attributable to a series of untoward events, including the

bankruptcy of Aspri, petitioner's relocation from Louisiana to

Iowa, petitioner's health problems, and, subsequently,

petitioner's period of overseas employment with SOI.    Each of

these factors, which the Court has previously discussed in

greater detail, contributed to the waning of BRVC's income.     In

addition, the losses can be attributed to some measure of poor

business judgment on the part of petitioner.    However, poor

business judgment does not, necessarily, equate with a lack of

profit motive.

     In response to each unfortunate circumstance, petitioner

amended the type and magnitude of BRVC activities, indicating her

desire to earn a profit.    The Court finds it also notable that

the expenses of BRVC decreased dramatically from 1990 forward, as
                               - 27 -

compared to prior years' expenses.      This illustrates an obvious

effort by petitioner to reduce BRVC losses in a time of extreme

revenue shortages.    It is apparent that petitioner's efforts

began to pay off when, in 1993, BRVC again generated gross

income.    Although BRVC expenses remained relatively low, losses

were nevertheless sustained during 1993 and 1994.     However, by

1998 BRVC began experiencing financial improvements as BRVC

reported gross income of $13,188 and a net profit of $32.9     This

pattern of income and losses, coupled with petitioner's actions

in response thereto, indicates that petitioner possessed a profit

motive in operating BRVC.

     The seventh factor is the amount of occasional profits of

BRVC, if any.    The record reflects that BRVC realized a profit in

only 2 years of operation, $2,000 in 1986 and $32 in 1998.     A

minuscule loss of $29 was sustained in 1987.     Admittedly, viewed

in the most favorable light these profits were sporadic and

small.    This fact does not weigh in favor of a profit motive.

Nevertheless, in this case the Court considers that the

infrequency of net profits is not as significant as the pattern

of income and expenses.    The fact that profits were small and

occasional does not outweigh the fact that, when the receipts of


     9
          The Court is puzzled by the omission of return
information for 1995 through 1997. Nevertheless, given the
income pattern in other years, the Court surmises that BRVC
experienced a steady increase in gross income between the years
1994 and 1998.
                               - 28 -

BRVC began to decrease, a commensurate decrease in expenses was

accomplished in attempt to remedy the situation.   Additionally,

petitioner carried out recurrent conversions in the activities of

BRVC in an ongoing effort to make the business profitable.    The

fact that petitioner's efforts proved to be somewhat fruitless

does not require a finding of no profit motive.

     The eighth factor is petitioner's financial status.    From

1981 through 1985, petitioner was paid wage income by LSU,

although the amounts of such wage income are not a part of this

record.   During 1986, 1988, and 1998, petitioner's only income

was derived from BRVC with the exception of $2,782 in interest

income in 1986, $3,339 in interest income in 1988, and $3,103 in

interest and dividend income in 1998.10   For 1987, petitioner had

wage income of $12,250 and interest income of $3,498.   For 1989,

petitioner reported wages of $17,808, interest income of $4,173,

a $2,509 gain from the sale of an automobile, and $880 in

unemployment compensation.11   For 1990, petitioner reported wages




     10
          In addition to her loss from BRVC for 1988, petitioner
claimed a capital loss of $153. For 1998, petitioner also
reported a capital loss of $719 and a net operating loss
carryover of $6,203.
     11
          For 1989, petitioner also reported, in addition to the
BRVC loss, a $3,000 capital loss, a loss of $8,945 from the
operation of rental real estate, and a net operating loss
carryover of $12,055.
                              - 29 -

of $40,207 and interest income of $3,784.12   For 1991, petitioner

reported wages of $57,344 and interest income of $4,139.13

     During the years at issue, petitioner was employed by SOI

and earned wages of $54,118 and $38,029 for 1992 and 1993,

respectively.   Additionally, for 1992, petitioner reported

interest income of $2,757, a State income tax refund of $245, a

$3,000 capital loss, and a $1,940 loss from the operation of

rental real estate.   For 1993, petitioner reported interest

income of $2,225, a State income tax refund of $729, a $3,000

capital loss, and a loss of $1,817 from the operation of rental

real estate.

     For each of the years of operation, the amounts of income

derived by petitioner outside of BRVC are not so high as to

indicate that petitioner's primary objective in operating BRVC

was to generate tax savings, particularly in light of the other

losses reported on petitioner's returns for various years.     On

the contrary, these levels of other income and losses indicate

that petitioner lacked the luxury of a large amount of disposable

income that would enable her to fritter away tens of thousands of

dollars each year on a volleyball hobby.   The tax incentive for

     12
          In addition to the BRVC loss for 1990, petitioner
reported a $3,000 capital loss, a $3,057 loss from the operation
of rental real estate, and a net operating loss carryover of
$36,517.
     13
          Additionally, petitioner reported a $3,000 capital
loss, a $5,512 loss from the operation of rental real estate, and
a $24,388 net operating loss carryover.
                              - 30 -

incurring large expenditures in a hobby type business are much

greater for a taxpayer who has substantial income from other

sources.   See Jackson v. Commissioner, 59 T.C. 312, 317 (1972).

     Finally, the Court must examine the degree of personal

pleasure and recreation petitioner may have derived from the

conduct of BRVC.   Petitioner admittedly had a great love for the

sport of volleyball and experienced a certain level of personal

pleasure from conducting volleyball camps and clinics and

sponsoring a membership program for tournament play, thereby

promoting the development of young volleyball athletes.    However,

the Court believes that the BRVC activities conducted by

petitioner also proved, at times, to be demanding, exhausting,

and expensive, both physically and financially.   Nevertheless,

the mere fact that a taxpayer derives a certain amount of

personal pleasure from an activity does not, in and of itself,

render the activity not engaged in for profit.    See sec. 1.183-

2(b)(9), Income Tax Regs.   Moreover, a business will not be

recharacterized as a hobby merely because the owner finds the

activity pleasurable; i.e., suffering has never been made a

prerequisite to deductibility.   See Jackson v. Commissioner,

supra.

     The majority of people who engage in an activity for

primarily pleasurable purposes, i.e., a hobby, choose an activity

that differs greatly from experiences provided in their daily
                              - 31 -

professional lives.   Human nature guides us to choose a hobby

that provides us with a mental and physical respite from the

rigors of a career.   In this case, BRVC did not provide

petitioner a respite from her career but, rather, was essentially

an extension and potential augmentation of her professional life

as a volleyball player and coach.   BRVC did not allow petitioner

to escape from her professional life, rather, the two appear to

have been intertwined.   This factor does not weigh against a

profit motive on the part of petitioner.

     The Court acknowledges that this case presents a very close

question, one in which each factor had to be carefully

scrutinized and balanced in order to arrive at the ultimate

conclusion.   However, upon considering each of the underlying

facts in this case in the aggregate and evaluating each of the

nine factors giving greater weight to some than others, the Court

believes that the scale tips in favor of a profit motive on

behalf of petitioner.

     Therefore, on this record, the Court holds that petitioner

has sustained her burden of establishing that she had an actual

and honest objective of making a profit in her BRVC activity.

Accordingly, the Court holds that BRVC, for 1992 and 1993, did

not constitute an activity not engaged in for profit under

section 183(a).   Thus, petitioner is entitled to deduct the
                              - 32 -

losses realized in connection with BRVC during 1992 and 1993.14

Petitioner is sustained on this issue.

     The final issue is whether petitioner is liable for the

accuracy-related penalty under section 6662(a) for negligence or

disregard of rules or regulations for each of the years at issue.

Section 6662(a) provides that, if it is applicable to any portion

of an underpayment in taxes, there shall be added to the tax an

amount equal to 20 percent of the portion of the underpayment to

which section 6662 applies.   Since the Court has held in favor of

petitioner on the issue of whether BRVC was an activity not

engaged in for profit during the years at issue and thus has

negated all of the adjustments in the notice of deficiency, there

exists no further underpayment to which the accuracy-related

penalty under section 6662(a) may be applied.    Thus, petitioner

is not liable for the section 6662(a) penalty.




                                         Decision will be entered

                                    for petitioner.




     14
          Respondent conceded that petitioner substantiated the
expenses claimed on her 1992 and 1993 Federal income tax returns
in connection with BRVC.
