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Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
The issues to be decided are as follows:
1. Whether petitioners engaged in a horse breeding activity
with an actual and honest profit objective; and
2. whether petitioners are liable for penalties on income
tax pursuant to section 6662.
FINDINGS OF FACT
Some of the facts have been stipulated for trial pursuant to
Rule 91. The parties' stipulations of fact are incorporated
herein by reference and are found as facts in the instant case.
At the time they filed their petition in the instant case,
petitioners Eugene J. Phillips (Mr. Phillips) and Barbara A.
Phillips (Mrs. Phillips) resided in Stuart, Virginia, at their
farm, known as Green Pines Farm. Petitioners filed joint U.S.
Individual Income Tax Returns (Forms 1040) for each of the years
in issue.
During the years in issue, Mr. Phillips was employed as a
nurse anesthetist, and Mrs. Phillips was engaged in the rearing
and breeding of Arabian horses (Arabians) and quarter horses
(hereinafter horse activity) on petitioners' farm. Besides her
involvement with the horse activity, Mrs. Phillips was not
employed during the years in issue.
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