Kenneth E. Perry and Mary A. Hofer - Page 26

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             also note that petitioners made various attempts to improve              
             the profitability of their horse-related activity, such as               
             converting land to pasture and alfalfa, constructing fences              
             and barns, and attempting to acquire and acquiring mares in              
             foal.  Petitioners also withdrew from the thoroughbred                   
             business when it proved unprofitable and focused their                   
             attention on breeding Tennessee Walking Horses.                          

                  7.  Amount of Occasional Profits                                    
                  Petitioners did not report a net profit during any of               
             the years in issue.  However, petitioners did report a net               
             profit of $1,274 in 1994 and testified at trial that they                
             expected to realize a profit of $8,000 to $10,000 per year               
             once they established a viable stock of Tennessee Walking                
             Horses for breeding.  We also note that petitioners' losses              
             decreased gradually between 1991 and 1995, and that they                 
             realized substantial gains from the sale of the Union                    
             County property in 1994.                                                 

                  8.  Financial Status of the Taxpayer                                
                  Although petitioners were both full-time employees of               
             General Motors throughout the years in issue, neither of                 
             them earned particularly high wages during any of those                  
             years.  Petitioners also testified that they were forced to              
             cash in their stock options and retirement options with                  
             General Motors to finance the purchase of the Union County               




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