petitioners' boat was not being properly serviced and that Mr.
Quartiano would be willing to take over charter operations.
During September 1987, petitioners ceased making payments to the
bank on the promissory note. Prior to finalizing any arrangement
with Mr. Quartiano, during November 1987, the financing bank
brought a Complaint in Admiralty against petitioners and their
North Carolina corporation in Federal court to foreclose on a
"United States First Preferred Ship Mortgage and Marine Security
Agreement", and the fishing boat was seized by U.S. marshals
pursuant to a court order. The fishing boat was sold under a
court order on June 24, 1988, for $50,000. Petitioners claimed
depreciation and expenses connected with the fishing boat through
1987. For 1988, the $939 claimed represented legal fees in
connection with the lawsuit and foreclosure of the fishing boat.
Other than one short ride, there was no personal use of the
fishing boat by the petitioners. Petitioners believed that the
revenues from chartering the fishing boat would be sufficient to
cover the mortgage payments on the boat. Petitioners received
monthly charter summaries revealing that the boat had been
chartered very little.
(1) Manner in which the taxpayer carries on the activity.
The fishing boat activity was operated through petitioners' S
corporation, and petitioners relied on their accountant and
independent charter contractors. Although several entities were
interposed between the fishing boat and petitioners, ultimately
as owners, it was, in effect, their charter business. In this
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