- 33 -
horse for approximately 10 years, and Mrs. Phillips was unable to
ride because of her heart problems and back problems. Before her
health problems, Mrs. Phillips rode some horses only in order to
prepare them for racing, sale, or show. Consequently, we
conclude that petitioners did not engage in their horse activity
for its recreational or personal aspects.
We have considered respondent's remaining arguments and find
them to be without merit. After considering the record as a
whole, and particularly Mrs. Phillips' health problems during the
years in issue, petitioners' bankruptcy, and the startup nature
of petitioners' activity, we find that petitioners engaged in
their horse activity for profit. We therefore hold that section
183 does not apply to petitioners' horse activity and that
petitioners are entitled to deduct activity expenses in excess of
activity income for the years in issue.
As we have held that petitioners are entitled to deduct
activity expenses in excess of activity income for the years in
issue, petitioners are not liable for the penalties for
substantial understatement of income tax pursuant to section
6662.
To reflect the foregoing,
Decision will be entered
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