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The issues for decision are: (1) Whether a horse breeding
activity conducted by petitioner was an activity not engaged in
for profit under section 183(a); (2) alternatively, whether,
under section 162(a), some of the expenses in connection with the
activity were substantiated; (3) whether petitioner, in an
unrelated business activity, established, under section 1012, a
basis for an asset used in that activity upon which depreciation
would be allowable under section 167(a); and (4) whether
petitioner is liable for the penalties under section 6662(a).
Some of the facts were stipulated. Those facts, with the
annexed exhibits, are so found and are incorporated herein by
reference. At the time the petition was filed, petitioner's
legal residence was San Antonio, Texas.
The first issue is with respect to a horse breeding activity
that petitioner commenced in 1990 with the purchase of one horse.
She purchased another horse in 1991. During 1993 and 1994, the
years at issue, petitioner had six horses. The horses were
quarter horses. The activity was not successful from a financial
standpoint. Petitioner amassed substantial losses over the
years, although the losses did not deter petitioner's continuing
interest in and dedication to the activity. The Schedule C
losses reported by petitioner on her Federal income tax returns
were $18,642 and $8,869, respectively, for 1993 and 1994. The
other years, prior to and subsequent to the years at issue, were
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