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We disagree with respondent. Petitioners herein lost the
two substantive tax issues in this case largely because of
objective factors not in their favor and because of their burden
of proof on those issues. Petitioners, however, did impress us
with their general testimony and credibility. We note the many
cases in which a profit objective has been found to be present in
connection with horse breeding and horse racing activities in the
face of substantial losses over a number of years. See e.g.,
Engdahl v. Commissioner, 72 T.C. 659 (1979); Holbrook v.
Commissioner, T.C. Memo. 1993-383; Scheidt v. Commissioner, T.C.
Memo. 1992-9; Stephens v. Commissioner, T.C. Memo. 1990-376.
We also believe it appropriate and necessary in this case,
particularly in considering additions to tax in the context of an
issue arising under section 183, to take into account, as
explained previously herein, the fact that the case law and
regulatory authority under section 183 establish very clearly
that a taxpayer's professed profit objective in engaging in an
activity need not be "reasonable".
We conclude, under the facts of this case, that petitioners
filed valid extension applications for their 1988 Federal income
tax returns and on August 15, 1989, timely filed their 1988
Federal income tax returns. We also conclude that petitioners
were not negligent in filing their 1988 Federal income tax
returns, and that petitioners had substantial authority for the
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