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activity described as "Breeding and showing horses"
beginning with the 1986 tax year.
Books and Records
Initially, petitioners' financial record keeping
consisted of retaining receipts of expenses related to the
horse activity in a box in their home. At the end of the
year, petitioners would sort through these receipts with an
accountant to calculate their tax liability. In or around
1988, after the start of respondent's audit, petitioners
began recording receipts and expenditures related to their
horse operation on a calendar where they also recorded
important events such as the dates foals were born and the
dates of inoculations. In or around 1989, petitioners also
began transferring these records to financial ledgers.
Petitioners did not maintain a separate bank account for
their horserelated activity during any of the years in
issue and did not introduce any of their financial records
into evidence.
OPINION
Section 183
The primary factual issue in this case is whether
petitioners' horse breeding and boarding operation was an
"activity not engaged in for profit" as defined by section
183. Section 183(a) provides generally that in the case of
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