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base is not consistent with the behavior of profit-minded
individuals.
Perhaps the most important indication of whether or not an
activity is being performed in a businesslike manner is whether
or not the taxpayer implements some method for controlling
losses. Petitioners assert that they did nearly all of their own
farm work, prepared and groomed their own horses, and hauled
their own horses to shows, all in an effort to minimize expenses.
However, petitioners' failure to produce any significant income
was a key factor in their failure to earn a profit. Despite the
fact that mares are able to produce one foal a year, petitioners
failed to breed their mares with any regularity. Petitioners
argue that they raised steers in order to alleviate losses.
However, petitioners only purchased and sold four steers a year.
Petitioners' typical annual gross receipts from cattle sales was
about $2,000. The revenue from the sale of cattle is
insignificant when compared to the horse related expenses and was
not a significant attempt at reducing losses.
2. Expertise of Petitioners
We next consider the expertise of petitioners with respect
to their horse-breeding activity. Sec. 1.183-2(b)(2), Income Tax
Regs. A taxpayer's expertise, research, and study of an
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