Rodney W. Taras and Linda K. Taras - Page 14

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          activity, they have attempted to increase profitability by                  
          reducing expenses.                                                          
               Although petitioners sought advice from several successful             
          horse trainers and breeders, their testimony in this regard was             
          vague and the meetings yielded no concrete plan of operation.               
          Petitioners decided to commence their activity with little                  
          concept of the expenses involved or of the steps required to                
          achieve cost efficiency and an eventual profit.  See Daley v.               
          Commissioner, T.C. Memo. 1996-259.                                          
               With respect to petitioners’ assertion that they constantly            
          analyzed and modified their business plan and operation in order            
          to minimize expenses, petitioners have failed to introduce                  
          specific credible evidence to indicate that increased profit                
          potential would result.  The record shows that expenses over 16             
          years of operating their horse racing and breeding activity have            
          generally remained constant or increased.7  Petitioners assert              
          that they reduced veterinary expenses between 1987 and 1990 and             
          reduced expenses by boarding their horses at their property as              
          part of a plan to increase profitability.  The record shows a               
          reduction of veterinary expenses in those years, but veterinary             
          expenses for the 7 years prior and 5 years after that period have           
          remained constant or increased as time passed.  Moreover,                   
          veterinary expenses account for less than 10 percent of overall             


               7See appendix.                                                         




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