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Engdahl v. Commissioner, supra at 669. From approximately 1985
through 1990, Bendabout suffered unforeseen losses resulting from
a high rate of abortion in its brood mares, which occurred
because the pastures on which they were grazing were contaminated
with a toxic fungus. Respondent argues, however, that after
petitioners replaced 45 acres of pasture land at a substantial
cost they abandoned the thoroughbred program. Respondent
contends that discontinuing an activity after expending large
sums to improve its productivity does not support a profit
objective.
Respondent fails to mention, however, that petitioners
replanted the pastures prior to 1990, and they did not liquidate
their horse breeding program until 1993. In fact, on brief,
respondent conceded that after petitioners had replanted the
pastures, Bendabout purchased several well-bred mares to enhance
its thoroughbred business. Furthermore, respondent ignores the
harsh reality of Mother Nature. During the years in issue, the
entire southeast entered into a severe 4-year drought. As a
result, Bendabout's first two or three efforts in reestablishing
the pastures were unsuccessful, exacerbating petitioners' losses.
Respondent further ignores the changes that occurred in the
market during this time. Robert Hill (Hill), petitioners' expert
witness in the thoroughbred industry, credibly testified that the
late 1980's brought a drastic drop in the average and median
prices for yearlings. He noted, however, that this price decline
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