Clarence A. Hunt, Jr. - Page 3

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            to be a horse owner and purchased his first thoroughbred racing                               
            horse.  He later acquired other horses but never owned more than                              
            three horses at any given time.  Prior to acquisition of his                                  
            first horse, petitioner did research as to the cost of                                        
            maintaining and training a racehorse, the potential revenue that                              
            could be made if a horse won a "certain caliber of race", and the                             
            rules and regulations of horse racing.  Petitioner hired horse                                
            trainers and boarded his horses at various race tracks.  In 1990,                             
            the year at issue, petitioner owned three thoroughbreds.  None of                             
            these were able to race during 1990 because they were all                                     
            injured.  From 1985 to 1990, horses owned by petitioner won a few                             
            minor races.  The activity never realized a profit.  Following                                
            1990, petitioner continued the activity with no greater degree of                             
            success until 1992 or 1993.                                                                   
                  On his 1990 Federal income tax return, petitioner reported                              
            expenses for training and veterinarians of $22,100, no gross                                  
            income, and a net loss of $22,100 from his horse racing activity.                             
            Petitioner reported wage income of $91,423 from Allied.                                       
                  In the notice of deficiency, respondent disallowed the horse                            
            racing activity loss, determining the horse racing activity was                               
            an activity not engaged in for profit under section 183, and that                             
            petitioner had not properly substantiated the claimed expenses.                               
            At trial, respondent conceded that the claimed expenses had been                              

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