Barry S. and Yvonne C. Hillman - Page 15

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          horse had been valued by the recipient educational institution,              
          when such was not the case,5 his credibility is subject to some              
          doubt, and we give his testimony less weight as a result.                    
          Manner in Which Activity Conducted                                           
               The fact that a taxpayer carries on an activity in a                    
          businesslike manner and maintains complete and accurate books and            
          records may indicate that the activity was engaged in for profit.            
          See sec. 1.183-2(b)(1), Income Tax Regs.  The record is replete              
          with instances where petitioners did not conduct the show horse              
          activity in a businesslike manner.  Petitioners had no written               
          business plan.  Asked to describe his business plan at trial, Dr.            
          Hillman testified that it was to concentrate on breeding so that             
          he would eventually build up a small herd.  Yet petitioners had              
          two of their three stallions gelded, and, so far as the record               
          indicates, the third stallion--Ben Hur, who had produced several             
          offspring prior to acquisition by petitioners--was bred only with            
          Ashley, petitioners’ mare with a history of foaling failures.                
          Ashley was petitioners’ sole mare, and she suffered three                    
          miscarriages before petitioners donated her to a veterinary                  
          school in 1994.  Nevertheless, there is no evidence that                     
          petitioners ever sought a replacement mare, either during                    

               5 A representative of the institution testified at trial,               
          without contradiction or challenge, that the institution never               
          provided appraisals of donated property and did not do so in the             
          case of Dr. Hillman’s donation.                                              

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