- 14 -
were depressed and they would have received approximately one-
half of their cost.
In October 1991, petitioner husband retired from the
practice of plastic surgery and sold his business. In the same
month, petitioners began a 5-year retirement cruise on Trinity to
the South Pacific, including New Zealand and Australia. There
was no business purpose for the cruise.
By 1991, Lucid Cruising had incurred $496,827 in yacht
acquisition costs and operating expenses. Lucid Cruising also
reported on its Federal income tax returns the following items:
3/16/87 1987
7/31/87 1988 1988 1989 1990
1991
Income 0 $942 $500 0 0 0
Expenses $3,848 $11,631 $19,683 $65,649 $71,576 $10,819
Net Loss 3,848 10,689 19,183 65,649 171,576 10,819
1 In the stipulation, this figure appears to contain a typographical error.
The Court has chosen to follow the figure in the tax return.
Petitioners deducted substantially all the expenses related to
the Brendan as a business expense of Lucid Cruising in 1987 and
1988, respectively. In 1990, petitioners deducted substantially
all the expenses related to the Trinity as a business expense of
Lucid Cruising. Petitioners used the loss from Lucid Cruising to
offset their gross income from 1988 through 1991.
Petitioners' reported gross income without reference to
losses from Lucid Cruising or other activities was as follows:
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