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written profit or loss statements or balance sheets for the
horse-breeding activity. Mr. Morley, however, had a business
plan, which was to develop the horse-breeding activity into an
enterprise that would support himself and his wife during their
retirement years, and he modified the plan in order to reduce
expenses and in an attempt to generate a profit. The business
plan was evidence by Mr. Morley's actions: Mr. Morley purchased
the farm for the horse-breeding activity, bred his horses to
produce foals, showed his horses, and advertised his horses for
sale. See Phillips v. Commissioner, T.C. Memo. 1997-128.
Mr. Morley maintained an itemized list of expenses and a
general ledger for the horse-breeding activity. He also
consulted with other horse breeders and educated himself about
breeding Arabian horses and horse farm management.7
Mr. Morley maintained a separate bank account for the horse-
breeding activity. He advertised his horses. Mr. Morley
marketed his horses with promotional materials whose color
pattern matched those of the University of Tennessee.8 He
7 We have previously held that a taxpayer's informal and
continuous consultations with experts knowledgeable about horses
and horse-breeding activities demonstrated the taxpayer's intent
to engage in horse breeding for profit even though the taxpayer
did not conduct a formal market study. Engdahl v. Commissioner,
72 T.C. 659, 668 (1979).
8 Mr. Morley testified that he chose the color pattern for
his promotional materials because orange and white were the
colors of the University of Tennessee, and he lived in "Big
Orange" country. We understand his statement about "Big Orange"
(continued...)
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