ARGUED: Michael Edwin Caryl, Bowles, Rice, McDavid, Graff & Love, Martinsburg, WV, for appellants. William J. Patton, Tax Div., U.S. Dept. of Justice, Washington, DC, for appellee. ON BRIEF: David A. DeJarnett, Bowles, Rice, McDavid, Graff & Love, Martinsburg, WV, for appellants. Loretta C. Argrett, Asst. Atty. Gen., Gary R. Allen, Teresa E. McLaughlin, Tax Div., U.S. Dept. of Justice, Washington, DC, for appellee.

Before ERVIN, Chief Judge, MICHAEL, United States District Judge for the Western District of Virginia, sitting by designation, and ELLIS, United States District Judge for the Eastern District of Virginia, sitting by designation.

Affirmed by published opinion. Judge ELLIS wrote the opinion, in which Chief Judge ERVIN and Judge MICHAEL joined.

Appellants, a West Virginia surgeon and his wife,1 appeal a United States Tax Court decision disallowing certain deductions and finding that defendants owed additional taxes. This result followed the Tax Court's determination that appellants' operation of a farm in Jefferson County, West Virginia did not constitute an activity "engaged in for profit" within the meaning of Internal Revenue Code Sec. 183. Because we find that the Tax Court's determination was not clearly erroneous, we affirm.

Appellant Daniel E. Hendricks ("Hendricks") is a physician and surgeon practicing in Martinsburg, West Virginia and residing in Inwood, West Virginia. He has a lucrative practice and his income from his medical practice and other sources totaled $313,337 in 1987, $383,533 in 1988, and $315,376 in 1989.

In 1968, Hendricks purchased a 180 acre farm in Jefferson County, West Virginia for $50,000. Located on the property are two metal sheds, a barn for cattle and hay storage, and a "loafing shed."2 There are no other residential or recreational structures on the property. Hendricks owns a substantial quantity of farm equipment, including some twenty-five tractors, approximately half of which are not in operating condition and are used primarily as a source of spare parts. The farm equipment originally cost roughly $224,000.

Most of the farm's acreage consists of pasture land. The previous owner had grown small grain and hay, and raised cattle. Hendricks grew small grain from 1968 to 1974, but thereafter switched exclusively to cattle raising. During the years at issue, Hendricks maintained 70 to 100 head of cattle on the farm, and cattle sales were his only source of farm income.

Hendricks is undeniably energetic and hard-working. During the relevant time period, he worked in his medical practice from about 8:00 a.m. to 8:00 p.m. Monday through Friday and for a few hours on Sunday evenings as well. In addition, he was on call one day out of five and one weekend out of five. Nor was this the extent of his work activities; he also worked on the farm virtually every Saturday, most Sundays, and sometimes on weekdays.3 Despite Hendricks' energy and diligence, the farm was hardly a financial success. Only once in more than two decades did the farm show a profit. Over the years Hendricks, who is not without farming experience,4 took a number of steps to reduce costs and improve the farm's profitability. Significantly, however, he chose not to increase the acreage or cattle population, steps which he acknowledged might well have improved the farm's profitability. In any event, despite his efforts to move the farm into the black, Hendricks recorded losses for twenty out of twenty-one years; his cumulative operational losses incurred from 1971 to 1991 amounted to $569,000. Hendricks claimed farm expense deductions totalling $126,878.

The Commissioner of the Internal Revenue Service, following an audit of tax years 1987, 1988 and 1989, concluded (1) that Hendricks' farming activities were not "an activity engaged in for profit" as defined at Sec. 183 of the I.R.C., (2) that certain deductions Hendricks claimed with respect to his farming activities should be disallowed, and (3) that there were deficiencies in Hendricks' taxes in the aggregate amount of $39,318 for 1987, 1988 and 1989.

Hendricks and his wife petitioned the Tax Court for review. Upon review the Tax Court, though crediting Hendricks with some farming expertise and with making some efforts to improve the farm's profitability, affirmed the Commissioner's decision, concluding that Hendricks had not operated his farm with the requisite profit motive. Hendricks and his wife filed a timely appeal.

On review, we must affirm the decision of the Tax Court unless it is clearly erroneous. Faulconer v. Commissioner, 748 F.2d 890, 895 (4th Cir.1984). The Tax Court's decision is clearly erroneous only where "although there is evidence to support it, on the entire evidence the reviewing court is left with the definite and firm conviction that a mistake has been committed." Id.; see United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S. Ct. 525, 542, 92 L. Ed. 746 (1948). Thus, "where there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous." Thomas v. Commissioner, 792 F.2d 1256, 1260 (4th Cir.1986), citing Anderson v. Bessemer City, 470 U.S. 564, 105 S. Ct. 1504, 84 L. Ed. 2d 518 (1985).

Section 183(a) of the Code provides that if an activity is not engaged in for profit, "no deduction attributable to such activity shall be allowed," except as otherwise provided for in Sec. 183(b).5 An "activity not engaged in for profit" is defined 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." 26 U.S.C. Sec. 183(a) and (c) (1988). Thus, to prevail on his contention that the Tax Court erred in disallowing his farm-related deductions, Hendricks must show that he engaged in farming activities for the purpose of making a profit.6 In this regard, Treasury Regulation Sec. 1.183-2(a) is instructive. It provides that:

[t]he determination whether an activity is engaged in for profit is to be made by reference to objective standards, taking into account all of the facts and circumstances of each case. Although a reasonable expectation of profit is not required, the facts and circumstances must indicate that the taxpayer entered into the activity, or continued the activity, with the objective of making a profit.... In determining whether an activity is engaged in for profit, greater weight is given to objective facts than to the taxpayer's mere statement of his intent.

26 C.F.R. Sec. 1.183-2(a) (1993); see Faulconer, 748 F.2d at 894.

Consistent with the regulation, courts typically examine nine factors in determining whether a taxpayer engaged in an activity for profit: (1) the extent to which the taxpayer carries on the activity in a business-like manner; (2) the expertise of the taxpayer and his advisors; (3) time and effort expended by the taxpayer in conducting the activity; (4) the expectation that assets used in the activity may appreciate in value; (5) the taxpayer's success in carrying on similar or dissimilar activities; (6) the taxpayer's history of income or losses in the activity; (7) the amount of occasional profits earned, if any; (8) the taxpayer's financial status; and, (9) elements of personal pleasure or recreation in the activity. 26 C.F.R. Sec. 1.183-2(b)(1)-(9) (1993). These factors are not exclusive and no one factor, or number of factors, is dispositive. Faulconer, 748 F.2d at 894; Golanty v. Commissioner, 72 T.C. 411, 426, 1979 WL 3683 (1979), aff'd without published opinion 647 F.2d 170 (9th Cir.1981). And at all times, the taxpayer has the burden of showing that the activity was engaged in for profit. See Faulconer, 748 F.2d at 893.

These principles, applied here, compel the conclusion that the Tax Court was not clearly erroneous in determining that Hendricks did not operate his farm with the requisite profit motive. While Hendricks asserts the Tax Court misconstrued his testimony7 and erroneously concluded that he did not carry on his farming activities in a "business-like manner," we do not find that the Tax Court's determination was clear error. The Tax Court explicitly credited Hendricks with taking various steps to increase profitability, but found it "more significant" that Hendricks knew of steps he might have taken, but failed to take, to improve the farm's profitability.8 See 26 C.F.R. Sec. 1.183-2(b)(1) (indicating that a change in operating methods, adoption of new methods, or abandonment of unprofitable methods, consistent with an intent to improve profitability, may indicate a profit motive); Faulconer, 748 F.2d at 896.9 Under the facts and circumstances of this case, we cannot say that the Tax Court's weighing of the relevant evidence was clear error.

Nor is there merit to Hendricks' contention that the Tax Court implicitly required him to withdraw from his principal occupation as a physician in order to demonstrate that the time and effort he devoted to farming activities indicated a genuine profit motive.10 See 26 C.F.R. Sec. 1.183-2(b)(3); see, e.g., Scheidt v. Commissioner, T.C.M.1992-2 (1992) (full-time employment does not preclude a finding that an activity was engaged in with the requisite profit motive). Nothing in the Tax Court's opinion indicates such a finding. Rather, the Tax Court credited appellant with having worked on his farm almost every weekend since 1970, but noted that appellant was a full time physician who was on call one night out of every five and one weekend out of five. Despite appellant's assertions that the Tax Court misconstrued his testimony, appellant himself conceded that spending more time on his farm might have increased its profitability. Accordingly, the Tax Court's determination that this factor favored the Commissioner was not clear error.11

While the presence of personal motives in conducting an activity may indicate that the activity was not engaged in for profit purposes, 26 C.F.R. Sec. 1.183-2(b)(9), "gratification received from an activity is insufficient in itself to cause the activity to be considered not engaged in for profit." Faulconer, 748 F.2d at 901.12 Appellant contends that the Tax Court misconstrued this "personal pleasure or recreation" test by implicitly requiring him to express a desire to sell the farm in order to demonstrate that he was farming for profit rather than pleasure. Nothing in the Tax Court's opinion suggests this. Only after considering the other factors enumerated at 26 C.F.R. Sec. 1.183-2(b) did the Tax Court conclude that the record "suggests" that Hendricks engaged in farming for pleasure. Hence, the Tax Court's determination that this factor favored appellee was not clearly erroneous.

Next, the Tax Court correctly concluded that the farm's historic lack of profitability weighs against a profit motive. To be sure, a taxpayer may have a profit motive despite a history of losses. See Bessenyey v. Commissioner, 45 T.C. 261, 274 (1965), aff'd 379 F.2d 252 (2d Cir.), cert. denied, 389 U.S. 931, 88 S. Ct. 293, 19 L. Ed. 2d 283 (1967). Yet, a record of continued losses over an extended period of time is plainly relevant in discerning a taxpayer's true motivation. See Golanty, 72 T.C. 426; Remuzzi v. Commissioner, 54 T.C.M. (CCH) 1479, 1482 (1988), aff'd without published opinion 867 F.2d 609 (4th Cir.1989). Here, the farm lost money for twenty out of twenty-one years. As Hendricks failed to show that these losses were attributable to unforeseen or fortuitous circumstances,13 the Tax Court did not err in concluding that this factor favored appellee.

Further, "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." 26 C.F.R. Sec. 1.183-2(b)(8).14 Indeed, the facts here are somewhat similar to those set forth at 26 C.F.R. Sec. 1.183-2(c) Example 1, which indicates that a determination that a farming activity was not engaged in for profit may be appropriate where a wealthy taxpayer, who was born on a farm and has expressed a strong preference for living on a farm, inherits a farm that never made a profit before the taxpayer inherited it and which continues to have substantial losses that offset a considerable income.15 Here, Hendricks, as a physician and surgeon, had an aggregate income of some $1,012,246 for the tax years in question. As this is clearly "substantial income from other sources," and Hendricks' farm deductions had substantial tax benefits, the Tax Court did not err in concluding that this factor favored appellee.

Finally, Hendricks contends that the Tax Court failed adequately to consider the appreciation of his farming assets.16 We do not agree. It is true that federal regulations provide that an expectation that assets used in a particular activity may appreciate in value is a factor in determining whether an individual engaged in a particular activity with the requisite profit motive. 26 C.F.R. Sec. 1.183-2(b)(4). Accordingly, a taxpayer may be found to have the requisite profit motive, even if no profit is derived from current operations, if income from the activity together with the appreciation of land used in the activity will exceed operational expenses. Id. Yet, the mere expectation that land values may appreciate is not sufficient, in itself, to demonstrate that an activity was engaged in for profit. Thus, while Hendricks indicated that he generally expected his land to appreciate in value, "such a notion, without any probative foundation, is not enough to support a profit motive and, in particular, a contention that the appreciation could be anticipated to be sufficient to recoup petitioner's farming losses." Keelty v. Commissioner, 47 T.C.M. 1455 (1984). Accordingly, the Tax Court did not commit clear error in concluding that appreciation in Hendricks' tax related assets was not sufficient to support the finding of a profit motive.

In sum, the Tax Court's decision is based on the proper legal standards and is not clearly erroneous. Accordingly, the Tax Court's decision is

AFFIRMED.