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activity. Similarly, since 1988, Mrs. Phillips inherited some
funds, all of which petitioners invested in their horse activity.
At the time of trial, Mr. Phillips had not ridden a horse
for approximately 10 years, and Mrs. Phillips was unable to ride
because of her heart problems and back problems. Prior to her
health problems, Mrs. Phillips rode some horses only to prepare
them for racing, sale, or show. Both petitioners pursue other
recreational activities.
At the time of trial, Mr. Phillips was receiving a military
retirement pension, which, if he predeceases her, Mrs. Phillips
would lose, leaving her with only Social Security payments and
the income from the horse activity to live on. Petitioners
intend to develop a horse business that will support them when
Mr. Phillips retires from his employment as a nurse anesthetist,
provide a source of income to Mrs. Phillips if Mr. Phillips
should predecease her, and leave a business to their children.
OPINION
Respondent contends that petitioners did not conduct their
horse activity with an actual and honest profit objective and
that, therefore, losses for the years in issue are nondeductible,
except to the extent of income from the activity. Petitioners
contend that they engaged in their horse activity with the
requisite profit objective and that they are, therefore, entitled
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