Richard L. and Marjorie A. Pitts - Page 13




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          operation was too small for that.  It does not appear that Midget           
          Acres had a separate bank account.  We find that petitioners did            
          not conduct this activity in a businesslike manner.                         
               2. Expertise of Petitioners                                            
               Preparation for an activity by extensive study or                      
          consultation with experts may indicate a profit motive where the            
          taxpayer conducts the activity in accordance with such study or             
          advice.  See sec. 1.183-2(b)(2), Income Tax Regs.  Petitioner has           
          a long history with horses.  Both petitioners have worked with              
          horses, and petitioner especially has great knowledge and                   
          experience about bloodlines and with raising, training, showing,            
          and breeding of various types of horses.  Petitioners also spent            
          quite a few years working for horse farms where they observed               
          operations.  Petitioner often helped out friends and business               
          associates with the purchase of racing horses.  Petitioner                  
          testified that she sought advice from Robert Hundley who was a              
          trainer as Santa Anita Hollywood Park and a breeder of                      
          thoroughbred horses.  However, petitioner did not testify as to             
          the kind of advice sought nor the nature of the advice received.            
               While petitioners have excellent credentials for horse                 
          breeding, training, and racing, it is not clear whether they were           
          experienced or sought advice with regard to the financial aspects           
          of operating a horse business.                                              
               3. Time and Effort Spent in Conducting Activity                        
               The fact that the taxpayer devotes much of his or her                  
          personal time and effort to carrying on an activity, particularly           

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