Richard J. and Melodie D. McKeever - Page 33




                                               - 33 -                                                  
                  Petitioners did not engage Dr. Cortelezzi until 1993, well                           
            after the start of their horse activity.  As in Daley v.                                   
            Commissioner, T.C. Memo. 1996-259, petitioners decided to                                  
            commence their activity with little concept of the expenses                                
            involved or of the steps required to achieve cost efficiency and                           
            an eventual profit.                                                                        
                  Petitioners did not prepare for the economic aspects of the                          
            activity by study or consultation with experts, and they have not                          
            shown that, prior to inception of the activity, they had any                               
            concept of what their ultimate costs might be, how they might                              
            achieve any degree of cost efficiency, the amount of revenue they                          
            could expect, or what risks might impair the production of such                            
            revenues.  Accordingly, they were unprepared for the economic                              
            realities of the horse business.  See Rinehart v. Commissioner,                            
            T.C. Memo. 1998-205.                                                                       
                  This factor favors respondent’s position.                                            
                  3.  Petitioners’ Time and Effort                                                     
                  The fact that a taxpayer devotes personal time and effort                            
            to carry on an activity may indicate an intention to derive a                              
            profit, particularly where there are no substantial personal or                            
            recreational elements associated with the activity.  See Daley v.                          
            Commissioner, supra; sec. 1.183-2(b)(3), Income Tax Regs.                                  
                  While working full time, petitioners also managed and                                
            operated their paso fino activity during the years at issue.                               






Page:  Previous  23  24  25  26  27  28  29  30  31  32  33  34  35  36  37  38  39  40  41  42  Next

Last modified: May 25, 2011