Clarence A. Hunt, Jr. - Page 2

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            under section 6662(a) for negligence or disregard of rules or                                 
            regulations under section 6662(b)(1) and for a substantial                                    
            understatement of income tax under section 6662(b)(2).                                        
                  The issues for decision are:  (1) Whether petitioner's horse                            
            racing activity was an activity "not engaged in for profit" under                             
            section 183(a), and (2) whether petitioner is liable for the                                  
            accuracy-related penalty under section 6662(a).                                               
                  Some of the facts were stipulated, and those facts, with the                            
            annexed exhibits, are so found and are incorporated herein by                                 
            reference.  At the time the petition was filed, petitioner's                                  
            legal residence was Oakland, California.                                                      
                  Petitioner grew up near the Fairgrounds, a thoroughbred                                 
            horse racing track in New Orleans, Louisiana.  His cousin, who                                
            was a groom at the track, introduced petitioner to the grooming,                              
            training, and racing of thoroughbred horses.  Petitioner                                      
            developed a love for racehorses and fantasized of one day owning                              
            the winning horse in the Kentucky Derby.  Petitioner realized                                 
            that accomplishing such a goal would require a great deal of                                  
            capital.  In the meantime, petitioner frequented different horse                              
            racing tracks, met with trainers, and began studying horses.                                  
                  In 1980, petitioner began a temporary employment business                               
            called Allied Temporaries (Allied).  Through the success of this                              
            business, petitioner accumulated the resources necessary to begin                             
            a horse racing activity.  In 1985, petitioner obtained a license                              

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