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OPINION
I. Whether Petitioners Operated Their Horse Activity for a
Profit
A. In General
The principal issue before us is whether petitioners’ horse
activity constituted “an activity not engaged in for profit”
within the meaning of section 183 during 1991, 1992, and 1993.
Section 183(a) provides that if an activity is not engaged
in for profit, no deduction attributable to the activity shall be
allowed except as provided in section 183(b). Section 183(b)(1)
allows those deductions which otherwise are allowable regardless
of profit objective. Section 183(b)(2) allows those deductions
which would be allowable if the activity were engaged in for
profit, but only to the extent that gross income attributable to
the activity exceeds the deductions permitted by section
183(b)(1). Section 183(c) defines “activity not engaged in for
profit” as “any activity other than one with respect to which
deductions are allowable for the taxable year under section 162
or under paragraph (1) or (2) of section 212.”
Deductions are allowable under section 162 for the expenses
of carrying on an activity which constitutes a trade or business
of the taxpayer. See sec. 162; sec. 1.183-2(a), Income Tax Regs.
To be engaged in a trade or business with respect to which
deductions are allowable under section 162, “the taxpayer must be
involved in the activity with continuity and regularity,” and
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