James L. Sullivan and Dorothy B. Sullivan - Page 30

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          that period.11  While it would appear that petitioners                      
          experienced some unforeseen circumstances during the 1980's that            
          hampered profitability, we do not believe that the problems cited           
          by petitioners can entirely account for the losses between 1983             
          and 1987.                                                                   
               Other than a failed effort to lease Docs Fancy Feat for                
          breeding in 1991 or 1992, petitioners cite no mishaps or other              
          unforeseen circumstances that interfered with the profitability             
          of their activity subsequent to his crippling injury in 1988.               
          Although they argue that the passive loss provisions of the Tax             
          Reform Act of 1986 (1986 Act), Pub. L. 99-514, sec. 501, 100                
          Stat. 2233, had a depressive impact on horse prices, we do not              
          believe any impact from the 1986 Act constitutes an unforeseeable           
          circumstance into the early 1990's, particularly in the absence             
          of any post-1986 changes by petitioners in operating methods to             
          improve profitability.  The only significant change, namely, the            
          decision to switch bloodlines, occurred in 1985.                            
               To account for their losses from the late 1980's through               
          1995, petitioners cite the career of a second prize stallion,               
          Colonel Rey Lew.  Petitioners cite no mishaps with respect to               
          Colonel Rey Lew; they appear to rely instead on the lengthy                 
          period of development for a champion cutting horse stallion.                

               11 Mr. Sullivan testified that he was offered $1.25 million            
          for Docs Fancy Feat in 1985 by an offeror whose credit references           
          were negative.  There is no evidence to corroborate this claim.             




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