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because of their bankruptcy. Respondent also questions
petitioners' intention to build the barn, arguing that, as
petitioners had enough funds to spend on horse purchases and stud
fees to produce half Arabians, petitioners were financially able
to build the barn.
As to respondent's argument that petitioners did not attempt
to make changes in their operating methods and to reduce costs in
order to improve the profitability of their horse activity, we
disagree. Petitioners planned to begin horse boarding, horse
training, teaching classes in connection with Farrier College,
and operating a tack shop to sell equipment. Petitioners hired a
contractor to build a 32-stall horse barn on their farm, which
would have served both as a stable for the horses and as a
location for the tack shop. When the contractor went bankrupt,
petitioners built smaller barns to reduce the cost of boarding
some of their horses. Finally, during the years in issue,
petitioners attempted to sell horses but received offers that
they considered too low.
As to whether petitioners could have increased the
profitability of their horse activity by selling some or all of
their unproductive animals, we cannot conclude on this record
that any of the animals were "unproductive". Mrs. Phillips, for
example, testified that one gelding was used for Special Olympics
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