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sole income activity, a used car business. Petitioner frequently
visited the farm, with the children, and assisted minimally in
its operation. However, petitioner maintained or kept records of
sales, purchases, and expenses. She did not maintain a formal
set of books but made sure that all records were kept together
and submitted to their tax return preparer each year for
inclusion on the joint Federal income tax returns she and
intervenor filed. Petitioner knew that the cattle-raising
activity was not profitable, but she had expectations that, at
some point, the activity would become profitable. Petitioner and
intervenor separated in May 1993, and, thereafter, petitioner no
longer maintained records of the cattle-raising activity as she
had done in the past; however, she knew that intervenor continued
with the activity. The record does not show in what year
petitioner and intervenor commenced reporting the income and
expenses from the cattle-raising activity on their Federal income
tax returns, although the testimony at trial indicates that the
activity was reported on their joint income tax returns for the
years 1989 and thereafter. For the year 1993, petitioner and
intervenor reported gross income of $802, expenses of $28,199,
and a net loss of $27,397 from the cattle-raising activity on
Schedule C of their return, Profit or Loss From Business.
Petitioner and intervenor were divorced in May 1995. On
December 23, 1996, respondent issued separate notices of
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