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substantial in relation to their losses in the fifth through
seventh year of operating their horse activity.
B. Applying the Factors
1. Manner in Which the Taxpayer Conducts the Activity
Maintaining complete and accurate books and records,
conducting the activity in a manner substantially similar to
comparable businesses which are profitable, and making changes in
operations to adopt new techniques or abandon unprofitable
methods suggest that a taxpayer conducted an activity for profit.
See Engdahl v. Commissioner, 72 T.C. 659, 666-667 (1979); sec.
1.183-2(b)(1), Income Tax Regs.
Respondent contends that petitioners’ business plan was
inadequate because it contained little information about the
economics of the horse activity, and its financial projections
showed that petitioners would lose money from the activity.
Respondent contends that petitioners did not adequately
investigate other Arabian horse farms before they began their
horse activity because they did not examine the books and records
of other breeders and they visited much larger horse farms that
were involved in all aspects of the Arabian horse business.
Respondent contends that petitioners did not run the horse
activity in a businesslike manner because petitioners used the
same bank accounts for their horse activity and their personal
expenses. Respondent further contends that petitioner did not
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