MEMORANDUM OPINION

DEAN, Special Trial Judge: This case was assigned pursuant to the provisions of section 7443A(b)(3) and Rules 180, 181, and 182. ¹

Respondent determined deficiencies in, additions to, and an accuracy-related penalty on petitioner's Federal income taxes as follows:

After concessions by the parties, ² the issues for decision are: (1) Whether petitioner's artist activity was "not engaged in for profit" within 1996 Tax Ct. Memo LEXIS 307">*308 the meaning of section 183(c); (2) whether petitioner can substantiate claimed expenses; and (3) whether petitioner is liable for the additions to tax and an accuracy-related penalty as determined by respondent. The resolution of issue (1) will necessarily determine whether the income from petitioner's artist activity is properly classified as gross income derived from business or as miscellaneous income and short-term capital gain.

Some of the facts have been stipulated and are so found. The stipulation of facts and the attached exhibits are incorporated herein by this reference. Petitioner resided in Chicago, Illinois, at the time he filed his petition.

Background

Petitioner is a certified public account1996 Tax Ct. Memo LEXIS 307">*309 who attended Northern Illinois University in the early 1970's, earning sufficient credits to have a major in art and minor in accounting, although he did not graduate. From 1978 until the present, petitioner has been employed in various positions utilizing his accounting background.

In 1984, petitioner began his own accounting practice as a sole proprietor, operating out of rented space on the first floor of the building in which he lives. Petitioner has reported the results of his accounting business on Schedule C of his Federal income tax returns, although he has not filed a return every year. For each of the years at issue, the net profit from petitioner's accounting business is as follows:

At the same time that he began his accounting business, petitioner also began to develop himself as an artist. Indeed, petitioner's purpose in leaving his former employer was to use the accounting business to "pay the rent" while at the same time devoting more effort to his artistic endeavors. Petitioner has reported the results of his artist activity on a separate Schedule C for those returns that he has filed. 1996 Tax Ct. Memo LEXIS 307">*310 For the years at issue ³ the relevant figures are:

Petitioner received an extension for filing his 1988 Federal income tax return until October 15, 1989, and filed that return on December 7, 1990. Petitioner received an extension for filing his 1989 return until October 15, 1990, but never filed that return. Petitioner received an extension for filing his 1990 return until October 15, 1991, but never filed that return. Petitioner received an extension for filing his 1991 return until October 15, 1992, and filed that return on October 19, 1992.

1996 Tax Ct. Memo LEXIS 307">*311 Respondent determined that petitioner's artist activity was not engaged in for profit and therefore disallowed all of the deductions claimed attributable thereto. Alternatively, respondent determined that petitioner failed to substantiate the deductions or to prove that the expenditures were ordinary and necessary to either his artist or accounting activity and accordingly disallowed all of the claimed deductions. In accordance with this determination, respondent also reclassified petitioner's income from the artist activity as miscellaneous income from the sale of drawings and short-term capital gain from the sale of art supplies.

Discussion

General Requirements

The threshold issue for decision is whether petitioner's artist activity was "not engaged in for profit" within the meaning of section 183(c). Section 183(a) provides generally that if an activity is not engaged in for profit, no deduction attributable to such activity shall be allowed, except as otherwise provided in section 183(b). ⁴Section 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 section1996 Tax Ct. Memo LEXIS 307">*312 162 or under paragraph (1) or (2) of section 212."

Deductions are allowed under section 162 for the ordinary and necessary expenses of carrying on an activity that constitutes the taxpayer's trade or business. Deductions are allowed under section 212 for expenses paid or incurred in connection with an activity engaged in for the production or collection of income, or for the management, conservation, or maintenance of property held for the production of income. With respect to either section, however, the taxpayer must demonstrate the requisite profit objective for the activities in order1996 Tax Ct. Memo LEXIS 307">*313 to deduct associated expenses. Jasionowski v. Commissioner, 66 T.C. 312">66 T.C. 312, 66 T.C. 312">320-322 (1976); sec. 1.183-2(a), Income Tax Regs. The profit standards applicable to section 212 are the same as those used in section 162. See Agro Science Co. v. Commissioner, 934 F.2d 573">934 F.2d 573, 934 F.2d 573">576 (5th Cir. 1991), affg. T.C. Memo. 1989-687; Antonides v. Commissioner, 893 F.2d 656">893 F.2d 656, 893 F.2d 656">659 (4th Cir. 1990), affg. 91 T.C. 686">91 T.C. 686 (1988); Allen v. Commissioner, 72 T.C. 28">72 T.C. 28, 72 T.C. 28">33 (1979); Rand v. Commissioner, 34 T.C. 1146">34 T.C. 1146, 34 T.C. 1146">1149 (1960).

Whether the required profit objective exists is to be determined on the basis of all the facts and circumstances of each case. Hirsch v. Commissioner, 315 F.2d 731">315 F.2d 731, 315 F.2d 731">737 (9th Cir. 1963), affg. T.C. Memo. 1961-256; Golanty v. Commissioner, 72 T.C. 411">72 T.C. 411, 72 T.C. 411">426 (1979), affd. without published opinion 647 F.2d 170">647 F.2d 170 (9th Cir. 1981); sec. 1.183-2(a), Income Tax Regs. While the focus of1996 Tax Ct. Memo LEXIS 307">*314 the test is on the subjective intention of the taxpayer, greater weight is given to the objective facts than to the taxpayer's mere statement of his or her intent. Independent Elec. Supply, Inc. v. Commissioner, 781 F.2d 724">781 F.2d 724, 781 F.2d 724">726 (9th Cir. 1986), affg. T.C. Memo. 1984-472; Dreicer v. Commissioner, 78 T.C. 642">78 T.C. 642, 78 T.C. 642">645 (1982), affd. without opinion 702 F.2d 1205">702 F.2d 1205 (D.C. Cir. 1983); sec. 1.183-2(a), Income Tax Regs. Petitioner bears the burden of proving that he possessed the requisite objective and that respondent's determination that an activity was not engaged in for profit is erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111">290 U.S. 111, 290 U.S. 111">115 (1933).

Relevant Factors

Section 1.183-2(b), Income Tax Regs., sets forth some relevant factors for determining whether an activity is engaged in for profit. No one factor is controlling. Brannen v. Commissioner, 722 F.2d 695">722 F.2d 695, 722 F.2d 695">704 (11th Cir. 1984), affg. 78 T.C. 471">78 T.C. 471 (1982); 72 T.C. 411">Golanty v. Commissioner, supra at 426. The1996 Tax Ct. Memo LEXIS 307">*315 relevant factors include: (1) The manner in which the taxpayer carries on the activity; (2) the expertise of the taxpayer or his or her 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, which are earned; (8) the financial status of the taxpayer; and (9) the presence of elements of personal pleasure or recreation. Sec. 1.183-2(b), Income Tax Regs.

The fact that the taxpayer carries on the activity in a businesslike manner and maintains complete and accurate books and records may indicate that the activity is engaged in for profit. Sec. 1.183-2(b)(1), Income Tax Regs. Generally speaking, a taxpayer who maintains good records may be genuinely interested in using the records to develop a profitable business. Respondent argues that petitioner did not maintain adequate books and records for his artist activity. We agree.

The only business record petitioner placed in1996 Tax Ct. Memo LEXIS 307">*316 evidence was a cash receipts journal. The internal revenue agent who audited petitioner for 1988 through 1991, James M. Johnson, testified at trial that he disallowed the expenses related to the artist activity because petitioner's records consisted of a shoe box full of credit card statements and various receipts that did not reconcile with petitioner's cash disbursements journal. We find that petitioner did not maintain adequate books and records.

Furthermore, petitioner has offered no evidence to show that he conducted his artist activity in a businesslike manner. He did not use the limited records that he did keep on the activity to monitor expenses or to assess the activity's profitability. He did not maintain a budget for the activity or make any sort of financial projections. Nor did he even maintain a separate checking account for the activity.

Similarly, a taxpayer's failure to implement any operating changes after continued losses may indicate the lack of intent to make a profit. Brodrick v. Derby, 236 F.2d 35">236 F.2d 35, 236 F.2d 35">38 (10th Cir. 1956); Lewis v. Commissioner, T.C. Memo. 1992-420; Stubblefield v. Commissioner, T.C. Memo. 1988-480.1996 Tax Ct. Memo LEXIS 307">*317 There is no evidence in the record that petitioner has ever earned a profit from his artist activity since its inception in 1984. Indeed, in addition to the 1988 through 1991 years at issue here, petitioner also reported losses for every year during the 1984 through 1987 and 1992 through 1993 periods. Petitioner has presented no evidence of a change in operating methods to reverse his uninterrupted history of losses, tending to indicate that he is content to sustain those losses for purely personal reasons. Breckenridge v. Commissioner, T.C. Memo. 1983-66.

The large unabated expenditures, the absence even at this late date of any concrete business plans to reverse the losses, and the manner in which petitioner conducted his artist activity lead to the conclusion that this was not an activity engaged in for profit. Eppler v. Commissioner, 58 T.C. 691">58 T.C. 691, 58 T.C. 691">697 (1972), affd. without published opinion 486 F.2d 1406">486 F.2d 1406 (7th Cir. 1973).

Although the mere fact that a taxpayer derives personal pleasure from a particular activity does not mean that he or she lacks a profit objective with respect thereto, the1996 Tax Ct. Memo LEXIS 307">*318 presence of personal motives may indicate that the activity is not engaged in for profit. Glenn v. Commissioner, T.C. Memo. 1995-399. This is especially true where there are recreational or other personal elements involved. Sec. 1.183-2(b)(9), Income Tax Regs. As this Court has stated, with respect to this factor:

Unquestionably, an enterprise is no less a "business" because the entrepreneur gets satisfaction from his work; however, where the possibility for profit is small (given all the other factors) and the possibility for gratification is substantial, it is clear that the latter possibility constitutes the primary motivation for the activity. * * * [Burger v. Commissioner, T.C. Memo. 1985-523, affd. 809 F.2d 355">809 F.2d 355 (7th Cir. 1987); fn. ref. omitted.]