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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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