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expenses of $483,751 to generate a net gain from sales of horses
of $14,781.
Petitioners did not report any gains or losses from the sale
of horses on their 1987 through 1989 Federal income tax returns.
From July 1, 1990, through June 1, 1996, petitioner’s net gain
from horse sales was $309,734. The first year in which
petitioners claimed a deduction for horse show expenses in
calculating their Schedule F net farm loss was 1987. From 1987
through 1996, petitioners reported Schedule F net farm losses of
$1,742,352. Those losses included a net excess of horse show
expenses over horse show income of $105,250. Thus, for 1987
(when petitioner’s horse show expenses commenced) through 1996,
petitioner incurred expenses of $1,742,352 to generate a net gain
from sales of horses of $309,734.
Notwithstanding that the Schedule F activity was not
profitable for any year in which petitioner operated it on the
Arkansas ranch, it is quite clear that, if petitioner entered
into it, or continued it, with the actual and honest objective of
making a profit, it would be an activity engaged in for profit
within the meaning of section 183. See Dreicer v. Commissioner,
supra at 644-645; sec. 1.183-2(a), Income Tax Regs. If, on the
other hand, petitioner engaged in the Schedule F activity
primarily as a sport, hobby, or for recreation, petitioner would
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