James L. Sullivan and Dorothy B. Sullivan - Page 15

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          that their records were used to devise methods of modifying their           
          operations to improve profitability.  Mrs. Sullivan testified               
          merely that she reviewed the records to economize generally and             
          to insure that she was receiving the "best buys" on supplies.               
          Mr. Sullivan conceded that he reviewed the records only "when I             
          make out the income taxes".  Since the records were not employed            
          to improve operations or stem the recurring, significant losses             
          from petitioners' horse-related activities, we discount them.               
          Golanty v. Commissioner, supra; Bessenyey v. Commissioner, supra            
          at 274.                                                                     
               A change of operating methods or abandonment of unprofitable           
          methods in a manner consistent with an intent to improve                    
          profitability may indicate a profit motive.  Sec. 1.183-2(b)(1),            
          Income Tax Regs.  Petitioners contend that their decisions to               
          cease insuring their horses and to purchase only used trucks                
          after 1982 constitute changes in operating methods designed to              
          improve profitability.5  The evidence provided by petitioners is            
          too sketchy to be persuasive of their claim.  Although Mr.                  
          Sullivan provided some testimony regarding current costs for                
          horse insurance, without more information regarding the value of            
          petitioners' horses over the years, the significance of insurance           

               5 Petitioners also argue that Mrs. Sullivan performed all of           
          the unskilled manual labor attendant to keeping horses (such as             
          cleaning stables) and paid only for veterinarians, trainers, and            
          farriers.  However, there is no evidence that this practice                 
          represents any change in their mode of operation from the outset.           




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