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We reach a different conclusion, however, with respect to
the adjustments made pursuant to section 183. As we view the
record in this case, petitioners made a reasonable attempt to
comply with the applicable revenue laws. Our determination
regarding petitioners’ profit motivation was not easy.
Petitioners presented facts in support of their position that
their primary objective in conducting their horse activity was to
make a profit, and their arguments with respect to this highly
fact-intensive issue were reasonable and not frivolous. See
Engdahl v. Commissioner, 72 T.C. 659 (1979); Johnston v.
Commissioner, T.C. Memo. 1997-475; Phillips v. Commissioner, T.C.
Memo. 1997-128. Although we do not agree with petitioners’
arguments in the final analysis, petitioners have persuaded us
that their position regarding their horse activity was taken in
good faith and that they believed their return position was in
accordance with applicable law. This conclusion is supported by
petitioners’ certified public accountant, who prepared the
returns for the years at issue. He testified that petitioners’
returns were prepared and filed in good faith and in accordance
with his understanding of the then-applicable revenue laws. We
hold that the accuracy-related penalty does not apply to
respondent’s section 183 adjustments. We have carefully
considered the remaining arguments of both parties for results
contrary to those expressed herein, and to the extent not
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