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operation of their horse activity and from the appreciation in
the value of the horses once it was realized. Petitioners had a
world champion Arabian, Bella Joya, which earned them a
substantial amount of money. Petitioners bred Bella Joya to
Wiking, another champion horse, to produce a foal that they could
race. The foal, however, had to be put to sleep. Bella Joya has
produced another foal, which petitioners intend to race.
Additionally, petitioners' horses were appraised in 1995 at a
value of between $96,000 and $106,000.
During the years in issue, however, petitioners were
hampered by their bankruptcy payments and by Mrs. Phillips'
numerous medical problems. Once they are no longer hindered by
such considerations, petitioners will be able to invest more time
and money on their horse activity. Accordingly, based on the
record, we conclude that petitioners intended that an overall
profit would result from the operation of their horse activity
and from the appreciation in the value of the horses once it was
realized.
Section 1.183-2(b)(6), Income Tax Regs., provides that "A
series of losses during the initial or start-up stage of an
activity may not necessarily be an indication that the activity
is not engaged in for profit." The regulations continue:
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