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with high stakes. Respondent argues that, even if petitioners
had sold Bella Joya for the $180,000 asking price, there was no
prospect of recouping the cumulative losses for the activity, as
distinguished from Eisenman v. Commissioner, T.C. Memo. 1988-467.
We conclude that petitioners began their horse activity
during 1985 when they decided to change the focus of their horse
activity from quarter horses to Arabians upon purchasing Bella
Joya, along with 11 other Arabians. We have previously noted
that the startup phase of an American saddle-bred breeding
operation is 5 to 10 years. Engdahl v. Commissioner, 72 T.C.
659, 669 (1979). Similarly, we conclude in the instant case that
a period of 5 to 10 years for the startup phase of an Arabian
breeding operation is not unreasonable and hold that the years in
issue encompassed a startup period.
The losses sustained by petitioners during the startup
period were the result of unforeseen circumstances beyond the
control of petitioners, viz, Mr. Phillips' loss of his job, Mrs.
Phillips' health problems, and their chapter 13 bankruptcy. Sec.
1.183-2(b)(6), Income Tax Regs. We have addressed, supra, the
changes that petitioners either made or attempted to make in
order to minimize their losses. As petitioners' series of losses
were sustained because of unforeseen circumstances beyond their
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