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stipulations of facts, together with attached exhibits, are
incorporated herein by this reference.
At the time they filed their petition in this case, James J.
Lencke and Janene B. Lencke (petitioners) were residents of
Lafayette, Indiana. They timely filed their joint Federal income
tax returns for the taxable years 1990, 1991 and 1992.
Claimed Business Loss Deductions for Model Railroad Activity
James J. Lencke (Mr. Lencke) has been collecting model
railroad equipment and memorabilia for over 50 years. His model
railroad collection is elaborately displayed in the basement of
his home. It includes a complete circus with a big top, 12
operating carnival rides, 12 complete circus trains, hundreds of
buildings, signals, lights, and figurines, and at least 800
locomotives, 3,000 freight cars, and 2,000 passenger cars. Mr.
Lencke is very knowledgeable about model railroads.
Because Mr. Lencke had become disabled in July 1989, and
needed an activity to occupy his mind and his time, petitioners
started a model railroad activity, called Red Caboose, operated
from their home in 1990. Both Mr. Lencke and Janene B. Lencke
(Mrs. Lencke), participated in the activity during the years in
issue, and both were still engaged in the activity at the time
this case was tried.
Before deciding to begin their operation of Red Caboose,
petitioners visited model railroad shows and sought advice from
various vendors of model railroad supplies. Although they
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