Barry S. and Yvonne C. Hillman - Page 17

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          their returns for the period 1991 through 1996; they ultimately              
          stipulated that the “known” amounts expended for horse shows for             
          the period totaled $8,451, which indicates an overstatement                  
          exceeding 46 percent.  Moreover, to the extent records were                  
          maintained, there is no evidence that they were utilized to                  
          improve the performance of a losing operation.  Accordingly, we              
          discount them as a factor.  See Golanty v. Commissioner, supra at            
          430; Bessenyey v. Commissioner, 45 T.C. at 274; Sullivan v.                  
          Commissioner, T.C. Memo. 1998-367.                                           
               A change in operating methods or abandonment of unprofitable            
          methods in a manner consistent with an intent to improve                     
          profitability may indicate a profit motive.  See sec. 1.183-                 
          2(b)(1), Income Tax Regs.  However, in the instant case, there is            
          no convincing evidence that petitioners made modifications in                
          their activity to improve profitability.  Petitioners’ failure to            
          consider a replacement for their only brood mare has been                    
          discussed.  Similarly, there is no convincing evidence that Dr.              
          Hillman sought to improve on the record of breeding fees earned              
          by his remaining stallions; i.e., those he did not have gelded.              
          Dr. Hillman cited his “leasing” arrangement for Riskybiznis under            
          which a trainer took on the costs of the horse’s care, but any               
          savings here--which were not documented--were almost certainly               
          small in relation to petitioners’ annual losses.                             

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