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because the years in issue were the early stages of the horse
activity, which was very different from their other businesses.
Petitioners kept their expenses as low as possible.
Petitioner built most of the barn, stable, and exercise arena
himself. He significantly reduced some of his costs, such as
stud fees and the daily cost of feed per horse. Also,
petitioners sometimes negotiated reducing the purchase prices of
horses by offering a foal for a reduction in the cash price.
Respondent points out that the "show files" that petitioners
kept for each horse were not contemporaneously prepared but were
assembled in 1997. We infer nothing from this because the
preparation of the show files was based on information that
petitioners had contemporaneously.
This factor favors petitioners.
2. The Expertise of the Taxpayers or Their Advisers
Efforts to gain experience, a willingness to follow expert
advice, and preparation for an activity by extensive study of its
practices may indicate that a taxpayer has a profit motive. See
sec. 1.183-2(b)(2), Income Tax Regs.
Respondent contends that petitioners lacked expertise in
running a successful horse business, and that, although
petitioner studied the history of the Arabian horse and its
bloodlines, he spent little time investigating the business
aspects of an Arabian horse activity. Respondent contends that
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