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We have said that the startup phase of a horse breeding activity
may be 5 to 10 years. Engdahl v. Commissioner, supra.
Petitioner had losses for 12 years.
Petitioner contends that this case is similar to Perry v.
Commissioner, T.C. Memo. 1997-417; Shane v. Commissioner, T.C.
Memo. 1995-504; Arwood v. Commissioner, T.C. Memo. 1993-352; and
Pirnia v. Commissioner, T.C. Memo. 1989-627, where we found that
taxpayers had a profit motive despite having a history of losses.
We disagree. Those cases differ from this case for several
reasons. In Perry v. Commissioner, supra, the taxpayer had
losses from 1986 to 1993 during the startup period and a profit
in 1994. The taxpayers in Perry expected their land appreciation
to more than offset their losses.
The other cases cited by petitioner are also
distinguishable. In Shane v. Commissioner, supra, the taxpayer
had losses from 1986 to 1991 from racing the taxpayer's horses
but had profits in prior years. He bought an inexpensive horse
in 1988 and made a profit, winning about $65,000 in 18 months.
He kept his costs low. He stopped racing horses when it became
unprofitable and focused on breeding. We found that he
reasonably expected that his horses would increase in value. His
1990 and 1991 losses occurred within 5 to 10 years of when he
started to breed horses. Petitioners had considerably more
income than the taxpayer in Shane who earned $42,000 in 1990 and
$38,000 in 1991 from sources not related to horses and had
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