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* Robert's gross income as reported on Form 1040
includes Kerry's gross income and Robert's taxable
income includes Kerry's taxable income.
On audit for 1988, respondent determined that petitioners
were not engaged in their horse breeding and horse racing
activities for profit, and respondent disallowed the losses
petitioners claimed relating to each activity. With respect to
the LB Partnership, respondent determined that petitioners did
not materially participate in the LB Partnership and that the
losses realized from the LB Partnership were limited by the
passive income rules of section 469 and could not be used to
offset petitioners' nonpassive income.
For 1988, respondent also determined that petitioners were
liable for additions to tax under section 6651(a)(1) for failure
to timely file their Federal income tax returns, under section
6653(a)(1) for negligence, and under section 6661 for substantial
understatement of income taxes.
OPINION
Petitioners' Horse Breeding and Horse Racing Activities
Under section 183(b)(2), if an activity is not engaged in
for profit, expenses relating thereto are allowable but only to
the extent gross income derived from the activity exceeds
deductions relating thereto that are allowable under section
183(b)(1) without regard to whether the activity constituted a
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