- 17 -
10. Conclusion
While the matter is not free from doubt, on the basis of all
the facts and circumstances, we hold that petitioners failed to
prove that they engaged in their horse-related activity with the
primary purpose and dominant intent of making a profit within the
meaning of section 183. Accordingly, petitioners are not
entitled to horse-related expense deductions in excess of their
reported horse-related income.
As respondent has already prevailed on the primary issue, we
need not address the substantiation issue with respect to the
depreciation deduction for petitioners’ barn.
Unreported Capital Gain
Respondent determined that petitioners failed to report
$2,000 they received from the sale of Jenny Sport and Actis
Uptis. We find that respondent is in error. According to the
chart detailing the income activity of the business, petitioners
reported the income from the sale of the horses along with the
amounts they collected for boarding and booking fees on their
Schedule C. Petitioners do not have unreported capital gain.
Accuracy-Related Penalty
Section 6662(a) imposes a penalty of 20 percent on any
portion of an underpayment of tax that is attributable to
negligence or disregard of rules or regulations. See sec.
6662(a) and (b)(1). “Negligence” is defined as any failure to
make a reasonable attempt to comply with the provisions of the
Internal Revenue Code, and the term “disregard” includes any
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Next
Last modified: May 25, 2011