Sandra J. Brannon - Page 2




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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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