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Petitioners’ expert, Diane O’Connor (O’Connor), appraised
petitioners’ Arabian horses in April 1998. At that time,
petitioners had the following amounts of unrealized appreciation
in the horses they owned or that were born to horses they owned
during the years in issue:
Cash Foal Total 1998 1998
Horse basis right cost Value Appreciation
Pryncz $200 none $200 $5,000 $4,800
Prince
Hilal 500 none 500 4,500 4,000
Brigitta
La Brisa 2,000 $3,000 5,000 20,000 15,000
Vendalita 2,000 3,000 5,000 25,000 20,000
Splendante 3,000 none 3,000 28,000 25,000
That’s
Amore none 6,000 6,000 30,000 24,000
Brilliant none none 0 5,000 5,000
Spanish
Ballerina none none 0 10,000 10,000
Total 107,800
OPINION
A. Whether Petitioners Operated Their Arabian Show Horse
Breeding Activity for Profit
The issue for decision is whether petitioners operated their
Arabian show horse breeding activity for profit in 1994, 1995,
and 1996.
A taxpayer conducts an activity for profit if he or she does
so with an actual and honest profit objective. See Osteen v.
Commissioner, 62 F.3d 356, 358 (11th Cir. 1995), affg. in part
and revg. on other issues T.C. Memo. 1993-519; Surloff v.
Commissioner, 81 T.C. 210, 233 (1983); Dreicer v. Commissioner,
78 T.C. 642, 645 (1982), affd. without opinion 702 F.2d 1205
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