The regulations thus provide for delineating activities under section 183 with a general rule drawing on all facts and circumstances, and a special rule in the case of land acquired or held primarily for its appreciation on which farming is also conducted. In the latter circumstance, the regulations provide that the holding of the land and the farming will be considered a single activity only if the farming activity reduces the net cost of carrying the land. Determining whether the special rule in the regulations is applicable requires a finding of the primary purpose for acquiring or holding the land. Engdahl v. Commissioner, 72 T.C. 659">72 T.C. 659, 72 T.C. 659">668 n. 4 (1979); Perry v. Commissioner, T.C. Memo. 1997-417; Hoyle v. Commissioner, T.C. Memo. 1994-592.

Based largely on Dr. Burrus' own testimony and also on the objective evidence, we are persuaded that petitioners held the Maple Row land (i.e., the Cheatham, Robertson, and Sumner Properties) during the years in issue primarily with the intent to2003 Tax Ct. Memo LEXIS 287">*306 profit from the increase in the land's value. Dr. Burrus testified that "if I was going to make a profit related to this [i.e., Maple Row], it was because of the land rather than the herd, the cattle." Further, Dr. Burrus testified specifically to his interest in land as an investment:

I'm not really into asset-buying, other than buying land. * * * I'm sort of like stocks like I am land. If I buy them, I just let them sit, so I -I don't sell them unless there's some reason.

With respect to the Maple Row land, Dr. Burrus testified that he "was pretty sure it was going up in price" during the years in issue, and appraisals obtained by petitioners support the view that the properties were appreciating substantially. Moreover, Mrs. Burrus reported her occupation for the years in issue as "real estate manager".

That Dr. Burrus's primary profit motive during the years in issue was based on land appreciation rather than the cattle operation is also reflected in his actions with respect to FBHR. Although Dr. Burrus's disenchantment with FBHR's cattle breeding operations caused him to seek to reduce his share of the partnership's profits and losses from 50 percent to 20 percent, 2003 Tax Ct. Memo LEXIS 287">*307 he nonetheless was careful to retain his 50-percent interest in the partnership's land. At the dissolution of FBHR, the partners agreed that Dr. Burrus would receive only 20 percent of the cattle and other assets except the land. With respect to the land, Dr. Burrus had the option of either selling his half interest or buying Dr. Foreman's, based on Dr. Foreman's appraisal. Dr. Burrus opted to buy, even though a half interest in the Cheatham Property had nearly tripled in value during the partnership's ownership, from approximately $ 300,000 to over $ 800,000.

Dr. Burrus's own statement of his profit expectations regarding the Maple Row land and the significance of the cattle herd thereto, his expressed interest in land as an investment, his wife's description of her occupation as "real estate manager", and his actions with respect to the FBHR partnership all point convincingly to the conclusion that he held the land utilized in Maple Row's operations primarily with the intent to profit from its appreciation rather than for purposes of conducting the cattle activity. It follows that the land was "held primarily with the intent to profit from increase in its value" during the years2003 Tax Ct. Memo LEXIS 287">*308 in issue, within the meaning of the regulations. Sec. 1.183-1(d)(1), Income Tax Regs. ⁷

2003 Tax Ct. Memo LEXIS 287">*309 Since petitioners held the Maple Row land primarily with the intent to profit from its appreciation, the holding of the land and the farming activities are considered a single activity under the regulations only if the farming activity reduces the cost of holding the land. Id. The regulations further provide:

the farming and holding of the land will be considered a single activity only if the income derived from farming exceeds the deductions attributable to the farming activity which are not directly attributable to the holding of the land (that is, deductions other than those directly attributable to the holding of the land such as interest on a mortgage secured by the land, annual property taxes attributable to the land and improvements, and depreciation of the improvements to the land). [Id.]

Applying the foregoing regulation in this case, we conclude that the "income derived from farming" includes all income reported by petitioners on their Schedules F except the amount listed on the "Other income" line, which the testimony of both Dr. and Mrs. Burrus confirms is income petitioners received from renting three houses located on the Maple Row land. Such income is more2003 Tax Ct. Memo LEXIS 287">*310 appropriately allocable to the holding of land. As for deductions "directly attributable to the holding of the land" that should be excluded from farming deductions, we conclude, based in part on the parties' agreement, ⁸ that the amounts reported on the Schedules F for mortgage interest, taxes, and depreciation are directly attributable to the holding of the land and therefore should be excluded when determining whether the income from farming exceeds the deductions therefrom. The parties disagree regarding the treatment of the conservation expenses reported on the Schedules F, petitioner and respondent contending that they are attributable to landholding and farming, respectively. Since a precondition for the current deduction of a conservation expenditure is that the taxpayer be engaged in the business of farming, see sec. 175(a), we agree with respondent and conclude that the conservation expenses are not directly allocable to the land for purposes of section 1.183-1(d)(1), Income Tax Regs.

2003 Tax Ct. Memo LEXIS 287">*311 Excluding the Schedule F "Other income" from income and the Schedule F deductions that are "directly attributable to the holding of the land", petitioners' "income derived from farming" and "deductions attributable to * * * farming" within the meaning of section 1.183-1(d)(1), Income Tax Regs., during the years in issue are as follows:

Since petitioners' income derived from farming did not exceed the deductions attributable thereto in any of the years in issue, their farming activity -- i.e., the Maple Row cattle activity -- must be treated as a separate activity from the holding of land, in accordance with section 1.183-1(d)(1), Income Tax Regs.

Respondent concedes that petitioners' separate activity of holding land was an investment activity for which the allocable expenses are2003 Tax Ct. Memo LEXIS 287">*312 deductible. (See supra note 8.) It therefore remains for us to decide whether petitioners' separate activity of farming (i.e., as disaggregated under section 1.183-1(d)(1), Income Tax Regs., from the activity of holding land) was an activity not engaged in for profit within the meaning of section 183.

B. Application of Section 183 to Cattle Activity

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." In general, deductions are allowable under sections 162 or 212 for activities in which the taxpayer engaged with the primary purpose and dominant hope and intent of realizing a profit. Commissioner v. Groetzinger, 480 U.S. 23">480 U.S. 23, 480 U.S. 23">35, 94 L. Ed. 2d 25">94 L. Ed. 2d 25, 107 S. Ct. 980">107 S. Ct. 980 (1987); Hayden v. Commissioner, 889 F.2d 1548">889 F.2d 1548, 889 F.2d 1548">1552 (6th Cir. 1989), affg. T.C. Memo. 1988-3102003 Tax Ct. Memo LEXIS 287">*313 ; Novak v. Commissioner, T.C. Memo. 2000-234. "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." Campbell v. Commissioner, 868 F.2d 833">868 F.2d 833, 868 F.2d 833">836 (6th Cir. 1989), affg. in part, revg. in part and remanding T.C. Memo. 1986-569; Keanini v. Commissioner, 94 T.C. 41">94 T.C. 41, 94 T.C. 41">46 (1990); Dreicer v. Commissioner, 78 T.C. 642">78 T.C. 642, 78 T.C. 642">644-645 (1982), affd. without published opinion 702 F.2d 1205">702 F.2d 1205 (D. C. Cir. 1983); sec. 1.183-2(a), Income Tax Regs.

Whether the taxpayer engaged in an activity with the requisite profit objective is a question of fact to be determined by examining all the facts and circumstances, giving greater weight to objective facts than to the taxpayer's mere statement of intent. Engdahl v. Commissioner, 72 T.C. 659">72 T.C. 666; sec. 1.183-2(a), Income Tax Regs. The taxpayer bears the burden of proving the requisite profit objective. See Rule 142(a); 889 F.2d 1548"> Hayden v. Commissioner, supra at 15522003 Tax Ct. Memo LEXIS 287">*314 ; 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). ⁹

Section 1.183-2(b), Income Tax Regs., sets forth a nonexclusive list of factors to be considered in determining whether an activity is engaged in for profit. 868 F.2d 833"> Campbell v. Commissioner, supra at 836. These factors are: (1) The manner in which the taxpayer carried 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 loss with respect to the2003 Tax Ct. Memo LEXIS 287">*315 activity; (7) the amount of occasional profits, if any, which are earned; (8) the financial status of the taxpayer; and (9) whether elements of personal pleasure or recreation are involved. As no single factor is controlling, the facts and circumstances of the case taken as whole are determinative. Abramson v. Commissioner, 86 T.C. 360">86 T.C. 360, 86 T.C. 360">371 (1986); sec. 1.183-2(b), Income Tax Regs.

As a threshold matter, we must consider Dr. Burrus's previously quoted testimony to the effect that any profit he expected to make from Maple Row "was because of the land rather than the herd". Taken in context, we do not interpret Dr. Burrus's statement as a concession that he had no profit intent with respect to the cattle activity. Dr. Burrus's observations were directed at Maple Row as a whole -- that is, both the landholding and the cattle activity as an integrated undertaking. In this context, Dr. Burrus's statement reflected his judgment that any profits from the cattle operation would never be sufficient to cover the cost of holding the land. As he stated in the same context:

I wasn't worrying about making a profit from selling the cows in the magnitude2003 Tax Ct. Memo LEXIS 287">*316 of [$ ] 230,000 [the 1992 loss, including land costs] * * * [Neither] Dr. Foreman nor I ever made any profit [from cattle] that would counteract the cost of the land.

Thus, we understand Dr. Burrus as expressing the view that, because his land costs would dwarf what he considered to be the realistic profit potential of the cattle operation, any overall gain from the integrated undertaking would come from land appreciation. However, where, as here, the landholding and cattle breeding activities must be analyzed separately under section 183, we do not consider Dr. Burrus's comments directed at the combined results of landholding and cattle breeding activities as a concession that petitioners lacked a profit motive with respect to the cattle breeding activity considered separately.

We accordingly proceed to consider whether petitioners had an actual and honest intent to profit from the cattle activity, based on the factors enumerated in the regulations.

1. Manner in Which Activity Conducted

The fact that a taxpayer carries on an activity in a businesslike manner and maintains complete and accurate books and records may indicate that the activity was engaged in for profit. 2003 Tax Ct. Memo LEXIS 287">*317 See sec. 1.183-2(b)(1), Income Tax Regs. Also, a profit motive may be indicated by the conduct of the activity in a manner substantially similar to other activities of the same nature which are profitable. Id. Both parties proffered expert witnesses on cattle breeding to evaluate the conduct of Maple Row's cattle operations. ¹⁰ Petitioners did not have a written business plan, nor did they prepare income or budget projections with respect to the activity. However, petitioners contend that Dr. Burrus believed the cattle activity would begin to show a profit once the herd reached approximately 100 purebred productive cows and that he was endeavoring towards that goal. Respondent disputes petitioners' contention that they were endeavoring to achieve a herd of 100 cows, citing among other things the absence of records documenting the size of petitioners' herd for the years in issue.

2003 Tax Ct. Memo LEXIS 287">*318 We agree with respondent that it is not possible to determine the size of petitioners' herd during the years in issue from the herd inventory records in evidence. ¹¹ This is so because these records document births, but not sales, ¹² deaths or other dispositions. Nonetheless, petitioners' herd inventory records do show, and the parties agree, that petitioners' cattle produced the following purebred Hereford offspring during the years in issue:

2003 Tax Ct. Memo LEXIS 287">*319 Thus, the number of offspring produced by petitioners' herd nearly doubled in the first 4 years of operation and nearly tripled by the end of the sixth year. It is also undisputed that the "drop" rate -- i.e., calving rate -- for petitioners' cows was generally between 80 and 90 percent. ¹³ Consequently, the number of productive cows was clearly growing, suggesting the retention of female offspring for this purpose. Accordingly, petitioners' claim that they were building a herd during the years in issue finds substantial corroboration in the herd inventory records they maintained. In addition, Dr. Burrus's claim that he anticipated being able to sell purebred horned Hereford bulls for approximately $ 2,000 is substantiated in the financial ledgers, which record sales of bulls at prices in this range.

2003 Tax Ct. Memo LEXIS 287">*320 In short, the business plan claimed by petitioners is corroborated in the records they maintained. The herd inventories were also adequate to document the herd's productivity, to an extent sufficient to earn recognition from the AHA. Two of petitioners' cows earned AHA awards based on productivity in 1998; since the awards were based on the cows' production of nine and six calves respectively, it is clear that petitioners' records extending back into the years in issue were considered reliable and accurate by the AHA. Cf. Stonecipher v. Commissioner, T.C. Memo. 2000-378 (section 183 applicable to cattle breeding activity where no cattle inventory records kept).

Similarly, with respect to the financial ledgers for Maple Row maintained by Mrs. Burrus, we find that these records, though not flawless, represented a reasonably accurate attempt to record the activity's financial results. Moreover, petitioners maintained separate bank accounts for the purpose of conducting Maple Row's affairs. When cash was transferred from personal or other accounts to Maple Row's accounts, the transfer was recorded in the ledgers. Cf. id. (no separate bank account2003 Tax Ct. Memo LEXIS 287">*321 for cattle activity).

Respondent's expert postulated several criteria to which he believed a profit-oriented purebred cattle breeding operation would adhere, and found Maple Row's practices at variance with those criteria. To the extent the expert's testimony was intended to show that petitioners conducted their cattle breeding activity in a manner not substantially similar to like activities conducted for profit, we are unpersuaded. Respondent's expert cited the need for genetically superior stock, but then opined merely that he was unable to determine from the records provided him whether petitioners had such stock. In this regard, it is worth noting that the expert cited in his report petitioners' documentation to the effect that Maple Row had received the designation "1998 Top Recorders in Tennessee" for having registered 62 Hereford cattle. However, respondent's expert does not further discuss this reference, suggesting to us that his report lacked either thoroughness or objectivity. Respondent's expert further testified that embryo transfer would have been used in a profitable operation, whereas petitioner's expert testified that a switch from embryo transfer to natural selection2003 Tax Ct. Memo LEXIS 287">*322 in 1990 would have been a valid business decision at the time, given the then high cost of embryo transfer. Finally, respondent's expert postulated that for-profit purebred cattle breeding operations would be conducted at a well maintained, aesthetically pleasing farm site that would conform to the expectations of customers visiting the site for on-site purchases. The expert found Maple Row's facilities deficient in this respect and also believed that a for-profit operation would engage in advertising to attract such on-site customers. In fact, Maple Row sold its cattle by means of off-site auctions, obviating the need for advertising, and the prices petitioners obtained at auction were in line with what respondent's expert indicated were market prices. In sum, we are not persuaded that Maple Row's variances from the model cattle operation postulated by respondent's expert suggest a lack of profit motive.

Overall, we are persuaded that petitioners conducted their cattle breeding activity in a businesslike manner and maintained adequate records, which in accordance with section 1.183-2(b)(1), Income Tax Regs., tends to indicate the existence of an intent2003 Tax Ct. Memo LEXIS 287">*323 to make a profit.

2. Expertise of Taxpayer and Advisers

Preparation for an activity by extensive study or consultation with experts may indicate a profit objective where the taxpayer conducts the activity in accordance with such study or advice. See sec. 1.183-2(b)(2), Income Tax Regs. A taxpayer need not make a formal market study before engaging in an activity but should undertake a basic investigation of the factors that would affect profit. Westbrook v. Commissioner, T.C. Memo. 1993-634, affd. 68 F.3d 868">68 F.3d 868 (5th Cir. 1995). Expertise with respect to the mechanics of an activity can be distinguished from expertise in the economics of such activity, and the taxpayer's failure to obtain expertise in the economics of the activity in question may indicate a lack of profit objective. Burger v. Commissioner, 809 F.2d 355">809 F.2d 355, 809 F.2d 355">359 (7th Cir. 1987), affg. T.C. Memo. 1985-523.

Between the two of them, Dr. Burrus and Mr. Gruen possessed substantial experience with respect to breeding and caring for cattle. While neither Dr. Burrus nor Mr. Gruen had formal training regarding the economics of operating a profitable2003 Tax Ct. Memo LEXIS 287">*324 cattle breeding business, both of them had been around cattle breeding operations for the better part of their lives. We are persuaded that Dr. Burrus's near lifelong experience with farming, including livestock, gave him knowledge of both the mechanics and economics of livestock. In accordance with section 1.183-2(b)(2), Income Tax Regs., the expertise possessed by Dr. Burrus and his hired help tends to indicate the existence of a profit intent.

3. Time and Effort Expended

The fact that the taxpayer devotes much of his or her personal time and effort to carrying on an activity, particularly if the activity does not have substantial personal or recreational aspects, may indicate a profit objective. Sec. 1.183-2(b)(3), Income Tax Regs. The fact that the taxpayer devotes a limited amount of time to an activity does not necessarily indicate a lack of profit motive where the taxpayer employs competent and qualified persons to carry on such activity. Id.

Dr. Burrus often worked 7 days a week for 10 to 12 hours per day during the years in issue, and petitioners traveled to Africa to work at the mission hospital for approximately2003 Tax Ct. Memo LEXIS 287">*325 2 months of each year, thereby limiting the amount of time they were able to personally devote to the cattle activity. Nonetheless, they hired Mr. Gruen, whose experience and competence have been previously noted, full time to oversee the operations of the cattle activity. The record establishes that Dr. Burrus devoted significant time to consulting with Mr. Gruen in connection with decisionmaking for Maple Row, notwithstanding the demands of his medical practice. When one adds to the foregoing the fact that raising cattle generally lacks significant recreational aspects, ¹⁴ the application of section 1.183-2(b)(3), Income Tax Regs., tends to suggest the existence of a profit objective.

4. Expectation That Assets May Appreciate

2003 Tax Ct. Memo LEXIS 287">*326 An expectation that assets used in the activity will appreciate in value may indicate a profit objective. Golanty v. Commissioner, 72 T.C. 411">72 T.C. 427-428; Bessenyey v. Commissioner, 45 T.C. 261">45 T.C. 261, 45 T.C. 261">274 (1965), affd. 379 F.2d 252">379 F.2d 252 (2d Cir. 1967); Hillman v. Commissioner, T.C. Memo. 1999-255; Dodge v. Commissioner, T.C. Memo. 1998-89, affd. 188 F.3d 507">188 F.3d 507 (6th Cir. 1999); sec. 1.183-2(b)(4), Income Tax Regs. We have held at respondent's behest that petitioners' landholding and cattle activities must be treated as separate activities under section 1.183-1(d)(1), Income Tax Regs., for purposes of section 183.

As a consequence, any anticipated appreciation in the Maple Row land is not considered in ascertaining the existence of an intent to profit from the cattle activity. See Roberts v. Commissioner, T.C. Memo. 1987-404; Hambleton v. Commissioner, T.C. Memo. 1982-234. With respect to the livestock, we have previously found that petitioners' purebred herd was growing during the years in issue, and that they were2003 Tax Ct. Memo LEXIS 287">*327 breeding bulls that sold for approximately $ 2,000 each. These factors indicate that petitioners had an expectation that the herd would appreciate; under section 1.183-2(b)(4), Income Tax Regs., this expectation tends to indicate the existence of an intent to profit.

5. Past Success in Similar or Dissimilar Activities

A taxpayer's past success in similar or dissimilar activities may indicate that his engagement in a presently unprofitable activity is for profit. Sec. 1.183-2(b)(5), Income Tax Regs. Petitioners have enjoyed at least moderate success with MRC, Dr. Burrus has been successful in his medical practice, and the missionary hospital he established in Africa is still operating. Petitioners' prior experience with cattle breeding at FBHR was unsuccessful, at least if the appreciation in the value of the Cheatham Property during that period is disregarded. If the more than doubling in value of the Cheatham Property during the period it was held by the FBHR partnership is taken into account, Dr. Burrus's actions involving the partnership -- reducing his exposure to the operational losses while holding onto his full interest2003 Tax Ct. Memo LEXIS 287">*328 in the land -- appear financially astute. On balance, given the generally positive track record of Dr. Burrus's various entrepreneurial undertakings, we believe that the application of section 1.183- 2(b)(5), Income Tax Regs., provides support for the existence of an intent to profit.

6. Activity's History of Income or Losses

An activity's history of income or loss may reflect whether the taxpayer has a profit objective. Sec. 1.183-2(b)(6), Income Tax Regs. Unless explained by unforeseen or fortuitous circumstances beyond the taxpayer's control, a record of continuous losses beyond the period customarily required to obtain profitability may indicate that the activity is not engaged in for profit. 72 T.C. 411"> Golanty v. Commissioner, supra at 426; 45 T.C. 261"> Bessenyey v. Commissioner, supra at 274; Hillman v. Commissioner, supra; sec. 1.183-2(b)(6), Income Tax Regs.

As earlier calculated for purposes of determining whether petitioners' farming activity should be treated as a separate activity from the holding of land, the results from petitioners' Maple Row cattle activity for the2003 Tax Ct. Memo LEXIS 287">*329 years in issue are as follows:

For the 4 years immediately following the years in issue, if the same adjustments are made to show the results of the Maple Row cattle activity as a separate activity, those results are as follows:

Thus, petitioners have shown losses for the first 6 years of Maple Row's operations (the years in issue), as well as the next 4 years.

Petitioners point out that courts have recognized a startup period with respect to breeding activities that is longer than the period associated with other activities, and argue that their losses2003 Tax Ct. Memo LEXIS 287">*330 have been incurred during a startup period. See, e.g., Engdahl v. Commissioner, 72 T.C. 659">72 T.C. 669 (startup phase between 5 to 10 years for horse-breeding activity); Fields v. Commissioner, T.C. Memo. 1981-550 (losses in third, fourth, and fifth years of cattle breeding operation found to occur during startup phase).

Petitioners' losses throughout the first 6 years of Maple Row's operations are consistent with Dr. Burrus's stated business plan of expanding his herd of productive cows to 100, and not expecting to cover his losses until that time. As previously discussed, petitioners' records and other evidence corroborate that they were building a herd during the years at issue. Indeed, the herd's annual production of registered purebred offspring nearly tripled during the period. Although petitioners incurred losses during all 6 years in issue, we are persuaded that these years constituted a reasonable startup period. As a result, the continuous losses do not indicate the absence of an intent to profit, under section 1.183-2(b)(6), Income Tax Regs. While petitioners also incurred losses for the next 4 years (1996-99), the issue we2003 Tax Ct. Memo LEXIS 287">*331 must decide is whether they had an actual and honest intent to profit during the years in issue, given their herd growth and other factors extant at the time; petitioners' intentions and expectations for the years in issue were not informed by the experience of subsequent years. ¹⁵

7. Occasional Profits

The amount of any occasional profits, if large in relation to losses incurred or the taxpayer's investment, may indicate a profit objective. Sec. 1.183-2(b)(7), Income Tax Regs. The possibility of a substantial profit in a highly speculative venture may indicate a profit objective even where profits are occasional and small or nonexistent. Id.

As petitioners have shown no profit during any year of the Maple Row cattle activity, this factor is neutral.

8. Taxpayer's Financial Status

Substantial2003 Tax Ct. Memo LEXIS 287">*332 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, especially if there are personal or recreational elements involved. Sec. 1.183-2(b)(8), Income Tax Regs.

During each of the years in issue, Dr. Burrus earned substantial income from his medical practice, which obviously made it possible for petitioners to bear the losses incurred in connection with the cattle activity. However, recreational elements, which "especially" suggest the absence of a profit motive where substantial other income is available, were insignificant with respect to petitioners' cattle activity. ¹⁶ On balance, we do not believe this factor carries much weight in the instant case.

9. Personal Pleasure or Recreation

The existence of recreational or personal elements in an activity may indicate that the activity is not engaged2003 Tax Ct. Memo LEXIS 287">*333 in for profit. Sec. 1.183-2(b)(9), Income Tax Regs. On the other hand, where an activity lacks any appeal other than profit, a profit objective may be indicated. Id. Respondent cites several examples of recreational activities petitioners undertook on the Cheatham Property including, inter alia, fishing in the ponds, horseback riding, the annual dove hunt, and Camp Papa, to argue that Maple Row's recreational elements were significant and should evidence a lack of profit motive. The recreational elements respondent cites are more appropriately allocable to the landholding activity than the cattle activity, in our view. Moreover, petitioners did not maintain a residence at any of the Maple Row properties, and any personal or recreational aspect of the apartment available for their use at the Cheatham Property is likewise allocable to the landholding. While Dr. Burrus had an avocational interest in Hereford breeding, as evidenced by his attendance, and occasional showing of animals, at livestock conventions and fairs, we believe any recreational component of these activities was minor. Cf. Sullivan v. Commissioner, T.C. Memo. 1998-3672003 Tax Ct. Memo LEXIS 287">*334 (taxpayer's regular participation as nonprofessional rider in cutting horse competitions constitutes recreation indicative of lack of profit motive), affd. without published opinion 202 F.3d 264">202 F.3d 264 (5th Cir. 1999). Because petitioners' cattle activity lacked significant recreational appeal, a profit intent is indicated under section 1.183-2(b)(9), Income Tax Regs.

Petitioners' purebred Hereford herd grew significantly during the first 6 years of Maple Row's operation, the years at issue herein. Their herd inventory records document this herd building process. While losses were incurred in all 6 years, such losses are consistent with a startup period inherent in herd building and therefore do not necessarily indicate a lack of profit motive. Given the growth in petitioners' herd as of 1995, the demonstrated market value of purebred Hereford bulls, their record keeping practices, and the absence of significant recreational elements in cattle raising, we are persuaded that petitioners had an actual and honest intent to profit from their cattle activity during the years in issue. Accordingly, respondent's determination to disallow2003 Tax Ct. Memo LEXIS 287">*335 the losses attributable to petitioners' cattle activity under section 183 is not sustained.

II. Addition to Tax for Failure To File Timely Under Section 6651 and Accuracy-Related Penalties Under Section 6662

Respondent determined that petitioners are liable for the section 6651(a) addition to tax for failing to file a timely return for 1990. This addition to tax does not apply if the taxpayer proves that the failure to file timely was: (1) Due to reasonable cause, and (2) not due to willful neglect. Sec. 6651(a)(1); Rule 142(a)(1); United States v. Boyle, 469 U.S. 241">469 U.S. 241, 469 U.S. 241">245, 83 L. Ed. 2d 622">83 L. Ed. 2d 622, 105 S. Ct. 687">105 S. Ct. 687 (1985); Peacock v. Comm'r, T.C. Memo. 2002-122.

There is no dispute that the due date for petitioners' 1990 return was October 15, 1991, and that it was received on October 28, 1991. Petitioners argue that they had reasonable cause for untimely filing because they relied on their accountant to file their return. Reliance on an agent, however, does not constitute reasonable cause for a late2003 Tax Ct. Memo LEXIS 287">*336 filing under section 6651(a)(1). 469 U.S. 241"> United States v. Boyle, supra at 252; Stolz v. Commissioner, T.C. Memo. 1999-404. In the absence of any other argument or evidence establishing reasonable cause, we sustain respondent's determination under section 6651(a)(1) for 1990; petitioners conceded various adjustments for that year which would result in a deficiency, in addition to any deficiency resulting from our holdings herein. See sec. 6665(b)(1).

Respondent also determined that, for each of the years in issue, petitioners are liable for the section 6662(a) accuracy- related penalty due to their negligence or intentional disregard of rules or regulations. For this purpose, negligence includes any failure to make a reasonable attempt to comply with the provisions of the Internal Revenue Code, and disregard includes any careless, reckless, or intentional disregard of rules or regulations. Sec. 6662(c); sec. 1.6662-3(b), Income Tax Regs. The accuracy-related penalty does not apply to any portion of an underpayment2003 Tax Ct. Memo LEXIS 287">*337 to the extent the taxpayer shows there was reasonable cause for such portion and that the taxpayer acted in good faith. Sec. 6664(c)(1); secs. 1.6662-3(a), 1.6664-4(a), Income Tax Regs. The decision as to whether a taxpayer acted with reasonable cause and in good faith depends on all the facts and circumstances relevant to the case with the most important factor being the taxpayer's efforts to assess the proper tax liability. Jorgenson v. Commissioner, T.C. Memo. 2000-38; sec. 1.6664-4(b)(1), Income Tax Regs.

Petitioners treated the entire Maple Row cattle undertaking as one activity. Portions of the underpayments that may remain for the years in issue may be attributable to petitioners' failure to treat as a separate activity the holding of the land on which they conducted their cattle activity. ¹⁷ With respect to those portions, we find that petitioners had reasonable cause for the underpayment. We have found that petitioners conducted their cattle activity with the requisite profit motive to avoid the restrictions of section 1832003 Tax Ct. Memo LEXIS 287">*338 . In these circumstances, their failure to adhere to the precise requirements of the regulations requiring the treatment of farming and landholding as separate activities does not, in our view, reflect a lack of effort to assess their proper tax liability.

As for any remaining portions of the underpayments for the years in issue, such as those attributable to petitioners' failure to substantiate claimed deductions, petitioners have not addressed the issue, and we accordingly sustain respondent's determinations.

In light of the parties' concessions and the foregoing,

Decision will be entered under Rule 155.