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c. Changes Made To Foster Profitability
Petitioners claim that several changes in operating methods
support their claim of businesslike operation. First, in 1991,
petitioners purchased the Norco ranch, where they could board
their herd. Second, they changed advisers from Mr. Minter to Dr.
Cortelezzi. Third, petitioners changed their breeding program to
focus on different bloodlines10 in reliance on Dr. Cortelezzi’s
advice. Although we agree that these could be material changes,
see Engdahl v. Commissioner, 72 T.C. at 667-668, petitioners have
not convinced us that the changes had or will have a material
impact on their horse activity’s profitability; see Golanty v.
Commissioner, supra at 428 (Changes must be sufficient to change
materially the prospect of profitability). Petitioners have
failed to show that the changes they made were sufficient to
reduce their operating losses materially and to enhance
materially their prospects of making a profit. See id.
Petitioners’ plan with respect to the activity was to breed
horses and sell the foals at a profit. See Phillips v.
Commissioner, T.C. Memo. 1997-128 (written financial plan not
required where business plan evidenced by action). Although, for
each year at issue except 1993, petitioners attempted to breed
10Respondent argues that petitioners’ continued breeding of
Mi Palabra belies the claim of changed bloodlines. The evidence,
however, supports petitioners’ claim that they switched to
Colombian bloodlines.
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