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activities, petitioners continued to realize substantial losses
from both activities. During 1985 through 1988, petitioners
realized combined net losses of $518,277 from their horse
breeding and horse racing activities.
In 1989, petitioners determined that they were no longer
able to continue their horse breeding and horse racing
activities. In 1989, petitioners attempted to sell four of their
racehorses in a horse auction in California. Three of
petitioners' horses were sold at a price of $200 to $400 each.
After 1989, Joseph was no longer involved in the horse breeding
and horse racing activities.
In 1990, Robert sold or gave away the remainder of the
horses and terminated the horse breeding and horse racing
activities.
During 1980 through 1990, petitioners continued to work full
time at Machado Trucking. In 1990, at the time petitioners'
horse breeding and horse racing activities were terminated,
Machado Trucking became unprofitable and went out of business.
Petitioners recorded their expenses with respect to their
horse breeding and horse racing activities on a handwritten
ledger and in a computer database that was also used by Machado
Trucking. Checks, check stubs, and receipts relating to
petitioners' expenses with respect to their horse breeding and
horse racing activities were commingled and did not reflect
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