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testimony by Mr. Hudnall and a relative as to the functioning of
the boarding operation.
Petitioners produced property tax receipts from Shelby
County, Tennessee, for 4429 Kerwin Drive addressed to Victoria A.
Hudnall. Petitioners also presented a letter from the Internal
Revenue Service (IRS), dated January 21, 1997, rescinding an
offer to allow a deduction for interest payments on the Kerwin
Drive property as a "second home".
In the notice of deficiency, respondent determined that
petitioners' horse-boarding activity was not engaged in for
profit, disallowing all of the Schedule C expenses. Respondent
also disallowed deductions of mortgage interest and real estate
taxes for the home at 4429 Kerwin Drive because of lack of
substantiation.
Discussion
I. Horse Boarding
Section 183(a) generally provides that if an activity
engaged in by an individual is not entered into for profit, no
deduction attributable to the activity shall be allowed, except
as otherwise provided in section 183(b).2 An "activity not
2Sec. 183(b)(1) permits a deduction for expenses that are
otherwise deductible without regard to whether the activity is
engaged in for profit, such as personal property taxes. Sec.
183(b)(2) permits a deduction for expenses that would be
deductible only if the activity were engaged in for profit, but
(continued...)
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