                        T.C. Memo. 1998-87



                      UNITED STATES TAX COURT



   WALTER C. DEMATTIA AND ELIZABETH J. CROUSE, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 14267-96, 27239-96.     Filed March 2, 1998.



     Mark R. Solomon, for petitioners.

     Eric R. Skinner, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION

     LARO, Judge:   In two separate notices of deficiency dated

June 11 and September 19, 1996, respondent determined

deficiencies in petitioners' Federal income tax for 1992 and 1993

in the amounts of $11,023 and $19,550, respectively, and an

accuracy-related penalty under section 6662 for 1992 in the

amount of $2,205.   Petitioners petitioned the Court to
                                 - 2 -


redetermine these determinations, and these cases were

consolidated for trial, briefing, and opinion.    Following

respondent's concession as to the section 6662 accuracy-related

penalty for 1992, we must decide:    (1) Whether petitioners'

sponsorship of Constant DeMattia's (Constant) golf pursuit was an

activity not engaged in for profit within the meaning of section

183(a); and (2) if the activity was one engaged in for profit,

whether certain deductions disallowed by respondent are

allowable.   Unless otherwise stated, section references are to

the Internal Revenue Code in effect for the years in issue, Rule

references are to the Tax Court Rules of Practice and Procedure,

and dollar amounts are rounded to the nearest dollar.

                          FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

The stipulations of fact and the exhibits submitted therewith are

incorporated herein by this reference.    Petitioners, husband and

wife, resided in Farmington Hills, Michigan, when they petitioned

the Court.   Petitioners timely filed their joint Federal income

tax returns for 1992 and 1993.

     Walter C. DeMattia has four children from previous

marriages.   Constant is Dr. DeMattia's youngest child and the

only child from his marriage to Fernande DeMattia nee Fernande

Allain.   Elizabeth J. Crouse is Constant's stepmother.   Dr.

DeMattia and his son Constant have maintained a very close
                                 - 3 -


relationship.   Dr. DeMattia began playing golf recreationally

with Constant when he was 15 years old.     While in high school,

Constant played in local junior tournaments and some tournaments

held throughout the eastern United States.     Following high

school, in or around 1985, he attended Stetson University in

DeLand, Florida, on a full golf scholarship.     After graduation,

Constant took up residence in Altamonte Springs, Florida, a

suburb of Orlando, Florida.

     In September 1989, at 57 years old, Dr. DeMattia retired

from his dentistry practice.   Around the same time, Dr. DeMattia

and Constant discussed Constant's playing golf professionally and

Dr. DeMattia's sponsorship of Constant in this pursuit.

     From 1990 through 1996, Dr. DeMattia and Constant entered

into yearly sponsorship agreements.      Each sponsorship agreement

contained the following terms:

     W.C. DeMattia shall act as agent, manager and coach of
     Constant A. DeMattia in his professional golf career.
     In addition to the above services[,] W.C. DeMattia
     agrees to furnish money and resources to or for the
     benefit of C.A. DeMattia's professional golf career
     during the calendar year * * *. The above shall
     include enabling living funds.

     In return C.A. DeMattia Agrees to give W.C. DeMattia a
     percentage of his earnings based on the following
     schedule:

     Earnings Btwn[:]1           W.C. DeMattia Receives[:]


     1
        The sponsorship agreements do not require Constant to pay
any percentage of his earnings below $5,000.
                                   - 4 -


          $5,000   - $10,000                 70%
          10,000   - 15,000                  60
          15,000   - 50,000                  50
          50,000   - 100,000                 40
         100,000   +                         30

The 1990 through 1995 sponsorship agreements were signed,

respectively, on the following dates:       May 1, 1990; January 3,

1991; January 4, 1992; December 30, 1992; January 5, 1994; and

December 29, 1994.2      The 1990 through 1994 sponsorship agreements

were virtually identical.       The 1995 sponsorship agreement

incorporated the following additional change: "It is understood

that the word 'Earnings' as used in this contract[,] shall be

interpreted to mean 'Winnings from Golf Tournaments'".       This

addition stems from a change in Constant's financial

circumstances.       During 1992 through 1994, Constant had no source

of income independent of his golfing activity, and his disposable

funds came primarily from the sponsorship agreements.       In 1995,

Constant accepted a paid position as a golf instructor with Golf

Digest.     The 1995 sponsorship agreement stated that the parties

"clarified" the meaning of "earnings" as a result of Constant's

new employment position.

     The sponsorship agreements did not impose any limits on

Dr. DeMattia's potential liability for Constant's expenses or

specify productivity goals for Constant, to include a tournament

participation requirement.       Prior to entering into these

     2
          The 1996 sponsorship agreement is not in evidence.
                               - 5 -


agreements, Dr. DeMattia had never sponsored a professional

athlete or acted as an agent, manager, or coach to a professional

athlete.

     In 1992, Dr. DeMattia made direct and indirect expenditures

to or on behalf of Constant totaling $55,839.3   In 1993,

Dr. DeMattia made like expenditures in the amount of $66,728.4

Some of the aforementioned expenditures included expenses

incurred by Dr. DeMattia during trips to Florida.    During 1992

and 1993, Dr. DeMattia made six to eight trips per year to

Florida.   During 1990 through the present, Dr. DeMattia's father

lived in Ft. Lauderdale, Florida, approximately a 4-hour drive

from Dr. DeMattia's son's apartment in Altamonte Springs,

Florida.   Dr. DeMattia made occasional trips to see his father

while visiting Constant in Florida.

     In an effort to enter the professional ranks, Constant

attended the Professional Golf Association's (PGA) tour

qualifying school in 1991 through 1994, and 1997.5   Constant also

     3
        This sum is based on the following stipulated amounts:
$19,126 for golf-related expenses; $6,073 for Constant's personal
expenses; $1,540 in cash transfers; and $29,100 transferred from
Dr. DeMattia's bank account to Constant's bank account.
     4
        This sum is based on the following stipulated amounts:
$16,369 for golf-related expenses; $5,219 for Constant's personal
expenses; $3,270 in tournament entry fees; $845 in cash
transfers; and $41,025 transferred from Dr. DeMattia's bank
account to Constant's bank account.
     5
         The PGA tour qualifying school is one of a limited number
                                                    (continued...)
                                - 6 -


played in non-PGA sponsored tournaments and one PGA-sponsored

tournament.   During 1990 through 1996, Constant won between four

and five tournaments, none of which was sponsored by the PGA,

with his largest share of the winnings in a single tournament at

$2,000.    During 1994 through 1996, Constant suffered a series of

illnesses and injuries that affected his ability to participate

in tournaments and consequently his earning potential.   In 1994,

Constant suffered from a lingering viral infection.   Due, in

part, to this illness, Constant started but failed to finish PGA

tour qualifying school in 1994.6   In 1995, he suffered first a

sprained wrist and then a broken hand.    In 1996, Constant broke

his leg.   He did not attend the PGA tour qualifying school in

either 1995 or 1996.   Due to his physical injuries and the

demands of his position as a golf instructor, Constant did not

participate in any golf tournaments from March 1995 through

December 1995.   Although Constant made virtually no progress in

gaining entrance into the PGA from 1994 through 1996, Dr.

DeMattia's support remained unwavering.




     5
      (...continued)
of methods by which a player can qualify for play in PGA-
sponsored tournaments.
     6
        Petitioners submitted no evidence regarding Constant's
performance at the PGA tour qualifying school in 1991 through
1993 and in 1997.
                              - 7 -


     During 1990 through 1996, petitioners claimed the following

income, expenses, and losses relating to Dr. DeMattia's

sponsorship of Constant's golf career:

     Year       Income        Expense              Loss

     1990           $0        $14,507             $14,507
     1991            0         45,316              45,316
     1992            0         51,461              51,461
     1993        1,113         69,160              68,047
     1994          561         48,267              47,706
     1995            0         25,728              25,728
     1996            0         12,891              12,891
        Total    1,674        267,330             265,656

The claimed expenses for each year include Constant's personal

living expenses such as rent, food, nongolf related

transportation and clothing, and entertainment.    The claimed

expenses also include Dr. DeMattia's travel expenses for trips to

Florida and varied tournament locations.

     Dr. DeMattia maintained a crude record of expenses relating

to petitioners' sponsorship agreements.    He maintained a series

of envelopes in which he stored receipts; for example, hotel

bills were placed in the "hotel bill envelope".    At the end of

each year, Dr. DeMattia would prepare a summary based on those

receipts and the summaries were in turn used by his accountant to

prepare petitioners' Federal income tax returns.    Dr. DeMattia

did not maintain a separate bank account for the golf sponsorship

activities, nor did he maintain records of tournament entries or

prize money availability.
                                - 8 -


     In the notices of deficiency, respondent determined that

petitioners were not engaged in a golf sponsorship activity for

profit within the meaning of section 183(a) and disallowed the

losses for 1992 and 1993.

                               OPINION

     Section 183 limits the deductions for an activity not

entered into for profit to the amount of the activity's income.

Sec. 183(b).   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."7    An activity is

engaged in for profit if the taxpayer entertained an actual and

honest, even though unreasonable or unrealistic, profit objective

in engaging in the activity.    Smith v. Commissioner, 937 F.2d

1089, 1097 (6th Cir. 1991), revg. 91 T.C. 733 (1988); Campbell v.

Commissioner, 868 F.2d 833, 836 (6th Cir. 1989), affg. in part,

revg. in part, and remanding T.C. Memo. 1986-569; 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); sec. 1.183-2(a), Income Tax Regs.     The determination


     7
        Section 162 deals with "trade or business expenses",
which are limited to "ordinary and necessary expenses paid or
incurred * * * in carrying on any trade or business". Sec. 212
deals with expenses for the "production or collection of income"
or "management, conservation, or maintenance of property held for
the production of income".
                                - 9 -


of whether the requisite profit objective exists is to be

resolved on the basis of all the surrounding facts and

circumstances.    Finoli v. Commissioner, 86 T.C. 697, 722 (1986);

Allen v. Commissioner, 72 T.C. 28, 34 (1979).   Petitioners bear

the burden of proving that Dr. DeMattia entered into and remained

in the golf sponsorship activity with the requisite profit

objective.    Rule 142(a); Welch v. Helvering, 290 U.S. 111 (1933);

Beck v. Commissioner, 85 T.C. 557, 570 (1985); Flowers v.

Commissioner, 80 T.C. 914, 931 (1983).8

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

nonexclusive list of nine factors to be considered when

ascertaining a taxpayer's intent.   These factors are:   (1) The

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 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) elements of personal pleasure or

recreation.   All facts and circumstances must be taken into

     8
        Sec. 183(d) provides a statutory reversal of the burden
of proof if petitioners meet specified criteria. Petitioners do
not meet such criteria.
                                - 10 -


account, and more weight may be given to some factors than to

others.     Glenn v. Commissioner, T.C. Memo. 1995-399, affd.

without published opinion 103 F.3d 129 (6th Cir. 1996); Sec.

1.183-2(b), Income Tax Regs.     None of these factors is

dispositive.     Golanty v. Commissioner, 72 T.C. 411, 426 (1979),

affd. without published opinion 647 F.2d 170 (9th Cir. 1981).

       Dr. DeMattia testified that he had an honest objective of

making a profit from the golf sponsorship agreements with his

son.    He further testified that he believed that he would make

millions of dollars as a result of the sponsorship agreements.

We give greater weight to objective factors than to Dr.

DeMattia's uncorroborated testimony as to his intent in

determining whether he had the requisite profit objective.

Keanini v. Commissioner, 94 T.C. 41, 46 (1990); Dreicer v.

Commissioner, supra at 645; sec. 1.183-2(a), Income Tax Regs.

       1.   Manner in Which the Activity is Conducted

       That the taxpayer carried on the activity in a businesslike

manner and maintained complete and accurate records may indicate

that the activity is engaged in for profit.     Sec. 1.183-2(b)(1),

Income Tax Regs.     Additionally, a change in operating procedures,

adoption of new techniques, or the abandonment of unprofitable

methods indicates a profit motive.       Id.

       Among other things, respondent argues that the following

facts establish that Dr. DeMattia failed to conduct the activity
                              - 11 -


in a businesslike manner:   (1) Dr. DeMattia failed to adequately

assess the activity's profitability; (2) the sponsorship

agreements failed to limit Dr. DeMattia's potential liability or

require Constant to participate in a minimum number of

tournaments during any given year; (3) Dr. DeMattia failed to

maintain expense ledgers or journals indicating expenses incurred

or the specific reason for expenses incurred; (4) Dr. DeMattia

failed to document Constant's golf performance at any given

tournament, the number of tournaments entered, or the potential

prize money available at any given tournament.   Respondent also

argues that Dr. DeMattia's failure to implement any changes in

operating procedures and methods in response to mounting losses

indicates a lack of profit motive.

     Petitioners argue that Dr. DeMattia entered into the

agreements and conducted the activity in a businesslike manner.

First, petitioners cite Dr. DeMattia's preliminary investigation

into the feasibility of the sponsorship as evidence of the

requisite intent.   Dr. DeMattia testified that his decision to

sponsor his son was based on extensive research.   For example, in

order to evaluate the investment's profitability potential, he

talked to a number of knowledgeable people regarding his son's

likelihood of playing on the PGA tour.   Among others, Dr.

DeMattia spoke to his son's college coach at Stetson University,

the head golf instructor for Golf Digest, the golf coach at
                              - 12 -


Northwestern University, and the director of the Senior PGA tour.

Dr. DeMattia testified that, prior to entering into the

sponsorship agreements, and on the advice of an attorney, he

talked to numerous amateur players in order to determine the

content of similar sponsorship agreements.   Based on these

conversations, he took a draft sponsorship agreement to his

attorney Pat Ledwidge.   Petitioners also claim that Dr. DeMattia

made forecasts and estimates of the activity's likely expenses

and revenues, to include entry fees and motel costs.   Second,

petitioners cite Dr. DeMattia's record-keeping system as evidence

that he conducted the activity in a businesslike manner.   Third,

petitioners contend that Dr. DeMattia took numerous actions to

ensure the eventual profitability of his investment, including

consultations with advisers regarding his son's performance.

     Petitioners have not persuaded us that Dr. DeMattia

conducted the sponsorship activity in a businesslike manner.

First, the agreements fail to set any goals or financial

conditions that had to be met.   The agreements fail to specify

any minimum number of tournament entries by Constant or place a

cap on Dr. DeMattia's potential liability for Constant's yearly

expenses.   Second, we find Dr. DeMattia's investigation into the

potential profitability of the golf sponsorship to be lacking.

Among other things, Dr. DeMattia testified that he had not

calculated what Constant's earnings would have to be in order for
                              - 13 -


him to recognize a profit on his investment.    He also failed to

consult any attorneys or accountants regarding the sponsorship's

potential profitability.   Third, and even though the absence of a

separate checking account and formal books and records does not

always indicate that an activity was conducted in an

unbusinesslike manner, see Engdahl v. Commissioner, 72 T.C. 659,

666 (1979), under the circumstances herein, we conclude that Dr.

DeMattia's record-keeping system was not maintained for the

purpose of tracking the business' profitability or conducting the

activity in a businesslike manner.     Dr. DeMattia's crude record-

keeping system was not maintained for the purpose of cutting

expenses, increasing profits, and evaluating the overall

performance of the investment.   See Glenn v. Commissioner, supra.

Dr. DeMattia kept no record of the prize money available for each

of the tournaments, the amount of money Constant won, or the

amount of money to which petitioners were entitled.    Compare

Krause v. Commissioner, T.C. Memo. 1987-193 (taxpayers documented

their son's tournament play to include tour names, cities,

sponsoring club, and potential earnings).    They did not maintain

a budget for the activity.   Dr. DeMattia's only concern appears

to be the amounts which petitioners could deduct.

Furthermore, Dr. DeMattia's failure to make any changes in the

method of carrying on the activity in order to increase the

activity's potential profitability is also evidence of a lack of
                              - 14 -


profit intent.   Constant had only participated in four or five

tournaments during 1992 through 1993, and had minimal tournament

earnings in 1994 through 1996.   What is particularly telling is

Dr. DeMattia's reaction to Constant's new golf instructor

position.   Although Constant's new responsibilities impaired his

ability to play in tournaments, and hence generate income from

tournament winnings, Dr. DeMattia's only action in response

thereto was to ensure that Constant's separate earnings were not

covered by the sponsorship agreements.   If there had been the

requisite profit intent, all of the aforementioned facts should

have inspired corrective action on Dr. DeMattia's part.   This

factor supports respondent's determinations.

     2.   Expertise of Petitioners or their Advisors

     A taxpayer's expertise, research, and study of an activity,

as well as his or her consultation with experts, may be

indicative of a profit intent.   Sec. 1.183-2(b)(2), Income Tax

Regs.

     Respondent argues that Dr. DeMattia lacked the requisite

expertise to conduct the activity with a profit intent.   In

support, respondent cites the following facts:   (1) Dr. DeMattia

had never entered into any other sponsorship agreement with

another professional athlete; (2) he had never acted as a sports

agent; and (3) he had no formal training as a golf instructor.
                                - 15 -


Petitioners counter respondent's argument as follows: (1) Dr.

DeMattia developed a certain level of expertise by, among other

things, spending a significant amount of time reading

publications on golfers and on the psychology of athletes; and

(2) Dr. DeMattia sought out and obtained advice from various

experts in related fields.

       We believe that Dr. DeMattia did indeed take steps to

educate himself in matters relating to the sponsorship and

management of a professional athlete.     We also believe that

Dr. DeMattia sought out experts for the purpose of increasing his

son's likelihood of entering the professional ranks.     What we do

not find credible is that the aforementioned actions were done by

Dr. DeMattia with a bona fide objective of deriving a profit from

the sponsorship activity.     We believe that in cultivating

expertise and making use of experts to support his son's golfing

career Dr. DeMattia was acting as a parent would and not to make

a profit for himself.     Cf. Nova v. Commissioner, T.C. Memo. 1993-

563.    This factor supports respondent's determinations.

       3.   Time and Effort Spent in Conducting the Activity

       The fact that a taxpayer devotes much of his or her personal

time to an activity may indicate a profit intent, especially

where the activity does not involve substantial personal or

recreational aspects.     Also, a taxpayer's withdrawal from another

occupation to devote his or her time and effort to an activity
                                - 16 -


may indicate a profit motive.    Burleson v. Commissioner, T.C.

Memo. 1983-570; sec. 1.183-2(b)(3), Income Tax Regs.

     Respondent argues that any direct time and effort spent on

the activity by Dr. DeMattia is indicative of his love and

affection for his son and the sport of golf.   In support,

respondent cites Dr. DeMattia's 20-year history of playing the

game of golf and his history of playing the game with his son.

     Petitioners argue that Dr. DeMattia's participation level

indicates that he was engaged in the activity for profit.

Dr. DeMattia testified that he spent a substantial amount of

time, in excess of 30 hours a week, acting as his son's agent,

coach, and manager.   Among other things, Dr. DeMattia testified:

As Constant's coach, he would accompany his son to tournaments

and lessons, discuss quality of game play, and make suggestions

on how to improve Constant's play; as Constant's manager, he made

Constant's travel arrangements, paid bills, and spent a

significant amount of time reading varied publications which

addressed all aspects of the professional golfer's game.

Petitioners also cite Mr. DeMattia's retirement from his dental

practice as evidence that he entered into the sponsorship

activity with a profit motive.    Dr. DeMattia testified that the

sponsorship of his son's golfing activity was a significant

factor in his decision to sell his dental practice.
                              - 17 -


     We find Dr. DeMattia's statements regarding the degree of

effort and time spent on the activity not credible given

Constant's extended period of illnesses and injuries, the limited

number of tournament appearances, and his work as a golf

instructor which preempted his ability to participate in

tournaments or further develop his skills.    Furthermore, we

believe that the potential profitability from the sponsorship

agreements was not a motivating factor in Dr. DeMattia's decision

to retire from his dental practice.    For example, Dr. DeMattia

admitted that Government regulations and employee issues had

rendered his day-to-day operations less enjoyable.    Given this

testimony, we find that Dr. DeMattia's retirement is not evidence

of a profit motive towards the sponsorship agreement.      This

factor supports respondent's determinations.

     4.   Expectation That the Assets Will Appreciate in Value

     "Profit" encompasses appreciation in the value of the

assets.   Sec. 1.183-2(b)(4), Income Tax Regs.   Therefore, in

evaluating a taxpayer's intent, we also look to the taxpayer's

expectation that the assets used in the activity may appreciate

in value.

     Traditionally, the potential for asset appreciation is

associated with land and other tangible assets.    Here,

petitioners argue that there is some potential for the value of

the sponsorship agreements to increase.    This argument is based
                               - 18 -


on petitioners' interpretation of the sponsorship agreements.

Dr. DeMattia testified that both he and Constant contemplated

that Dr. DeMattia's right to a portion of his son's earnings

would continue indefinitely.    Hence, any future success by

Constant would inure to Dr. DeMattia.      Respondent contends that

there is no evidence which indicates that the sponsorship

agreements will appreciate in value over time or that the

sponsorship agreements cover Constant's future tournament

earnings.

     As an initial matter, the record does not support

petitioners' interpretation of the sponsorship agreements.

Constant testified that he had not given much thought to whether

or not each sponsorship agreement entitled his father to

Constant's future earnings.    Moreover, each sponsorship

agreement's coverage is limited to the corresponding "calendar

year".   As to Constant's transition into professional golf, the

evidence does not establish that Constant was attaining any

modicum of success and consequently that the sponsorship

agreements had any inherent value.      Constant testified that he

played in three or four different tours9 in 1992, with only one

PGA tournament appearance at the 1992 Canadian Open.      However, no

evidence was presented on the numbers of individual tournaments


     9
        A tour consists of a series of tournaments that are
played throughout the country.
                              - 19 -


entered into in each tour or their respective potential money

earnings.   Constant testified that he had entered 10 to 15 events

in 1996 through 1997, yet again petitioners presented no evidence

regarding Constant's success or ranking in any of these events.

The only evidence presented regarding Constant's performance is

his testimony that he won between four and five tournaments over

a 7-year period.   This factor supports respondent's

determinations.

     5.   Taxpayer's Success on Similar or Dissimilar Activities

     Although an activity is unprofitable, the fact that a

taxpayer has previously converted similar activities from

unprofitable to profitable enterprises may show a profit intent

with respect thereto.   Sec. 1.183-2(b)(5), Income Tax Regs.

     Respondent argues that Dr. DeMattia's lack of involvement in

any similar activity, either in the capacity of a sponsor, agent,

manager, or golf instructor, indicates a lack of profit motive.

In addition, respondent argues that Dr. DeMattia's prior success

in establishing and running a dental practice has no

applicability to his success in this type of activity.

Petitioners concede that Dr. DeMattia had no prior experience or

success in carrying on a similar activity; however, petitioners

portray Dr. DeMattia as an experienced businessman having a

number of successful businesses during his career, including a
                               - 20 -


maintenance supply business, a rental real estate business, and a

dental practice.

     We accept petitioners' characterization of Dr. DeMattia as

an astute businessman.    However, given his prior experience in

business dealings, we find that the manner in which he carried

out this activity makes it less likely that he entered into the

activity with a profit motive.    This factor supports respondent's

determinations.



     6.   An Activity's History of Income and/or Losses

     A series of losses beyond the startup stage may be

indicative of the absence of a profit motive unless such losses

can be blamed on unforeseen or fortuitous circumstances beyond

the taxpayer's control.    Sec. 1.183-2(b)(6), Income Tax Regs.

     Respondent argues that $265,656 in losses over 7 years

weighs against a profit intent.    Petitioners argue that losses in

the first few years are not indicative of the activity's

potential profitability, especially since Constant was either ill

or injured for a significant portion of 1994 through 1996.

     Assuming that there were unforeseen circumstances beyond

petitioners' control, such as the series of illnesses and

injuries suffered by Constant, petitioners failed to demonstrate

a direct correlation between Constant's illnesses and injuries
                                - 21 -


and the activity's lack of profitability.10      We therefore reject

petitioners' argument that the aforementioned circumstances

should militate against any negative inference derived from the

activity's pattern of losses.    In the record, we have information

concerning the activity for a period of 7 years, and in each of

those years petitioners incurred a substantial loss.      Given that

petitioners never reported a profit on their sponsorship

activity, and that the activity generated only $1,113 in income

during the years in issue, we find that this factor supports

respondent's determinations.    Cf. Kimbrough v. Commissioner, T.C.

Memo. 1988-185 (taxpayer's income from his golfing activity

increased steadily over the years involved in his case).

     7.   Amounts of Occasional Profits

     Occasional profits may indicate a profit motive.       However,

the absence of profits is not determinative of a lack of profit

motive.   Petitioners need only have an actual and honest profit

objective.   Absent actual profits generated from the activity, an

opportunity to earn a substantial ultimate profit in a highly

speculative venture is ordinarily sufficient to indicate that the

activity is engaged in for profit.       Sec. 1.183-2(b)(7), Income

Tax Regs.    "Profit" means economic profit independent of tax



     10
        We find it noteworthy that Constant's employment as a
golf instructor apparently continued uninterrupted during this
period.
                               - 22 -


consequences.   See Campbell v. Commissioner, 868 F.2d at 836;

Ronnen v. Commissioner, 90 T.C. at 92.

     In 7 years, petitioners' sponsorship activity never

generated a profit.   Of greater significance, we find it highly

unlikely that petitioners would have recognized a substantial

ultimate profit given Constant's position as a golf instructor

and his lack of success in tournament play. This factor supports

respondent's determinations.

     8.   Financial Status of Taxpayer

     Substantial income from sources other than the activity

(particularly if the losses from the activity generate

substantial tax benefits) may indicate that the activity is not

engaged in for profit.   This is especially true where there are

personal or recreational elements involved.   Sec. 1.183-2(b)(9),

Income Tax Regs.   Respondent argues that petitioners have

substantial income from other sources and that the losses

generated by their sponsorship activity have given them

substantial tax benefits for the last 7 years.

     In 1992, absent the losses generated by the sponsorship

activity, petitioners had taxable income of $61,244.   With the

loss deductions, petitioners' 1992 taxable income was $9,783.     As

to 1993, absent the losses generated by the sponsorship activity,

petitioners had taxable income of $199,087.   With the loss

deductions, petitioners' 1993 taxable income was $131,040.
                                - 23 -


Petitioners thereby received substantial tax benefits from the

sponsorship activity.    This factor supports respondent's

determinations.

     9.   Elements of Personal Pleasure

     Although the mere fact that a taxpayer derives personal

pleasure from a particular activity does not mean that he or she

lacks a profit intent with respect thereto, the presence of

personal motives may indicate that the activity is not engaged in

for profit.   This is especially true where there are recreational

elements involved.    Sec. 1.183-2(b)(9), Income Tax Regs.

     Respondent argues that the evidence establishes that Dr.

DeMattia's primary purpose in entering into the sponsorship

agreements was to assist Dr. DeMattia's son in pursuing a

professional golf career and not an honest objective of making a

profit within the meaning of section 183(a).    Respondent argues

that both personal motives and a recreational element are present

in this case.     As for personal motives, Dr. DeMattia derived some

degree of personal satisfaction in trying to assist Constant in

achieving his professional golfing goal, and the arrangement gave

Dr. DeMattia the opportunity to spend additional time with both

his father and his son.    As to the recreational element of the

activity, Dr. DeMattia has been an avid golfer for more than

20 years and particularly enjoys playing golf with his son.
                                - 24 -


     The presence of these facts in isolation is not dispositive.

"[T]he fact that the taxpayer derives personal pleasure from

engaging in the activity is not sufficient to cause the activity

to be classified as not engaged in for profit if the activity is

in fact engaged in for profit as evidenced by other factors".

Sec. 1.183-2(b)(9), Income Tax Regs. (Emphasis added).       However,

in this case, other factors do not indicate the presence of a

profit motive.    Accordingly, this factor supports respondent's

determinations.

     10.   Conclusion

     Based on our careful review of the record, and our

evaluation of the nine aforementioned factors, we conclude that

petitioners did not conduct their sponsorship activity with an

"actual and honest" objective of making a profit.11

     We have considered all other arguments made by petitioners

and found them to be either irrelevant or without merit.

                  To reflect the foregoing,

                                              Decisions will be entered

                                      for respondent as to the

                                      deficiencies in tax, and in

                                      accordance with respondent's


     11
        Having found that petitioners' golf sponsorship activity
was an "activity not engaged in for profit" within the meaning of
sec. 183, we need not address the issue of whether certain
deductions disallowed by respondent are allowable.
- 25 -


     concession for petitioners as

     to the penalty under

     section 6662.
