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that the startup phase of a horse-breeding activity may be 5 to
10 years. See Engdahl v. Commissioner, 72 T.C. 659, 669 (1979).
In 1976, petitioner bought his first parcel of real estate and
built a small barn on it. Petitioner has been breeding Arabian
horses since 1976.15 One of petitioner’s witnesses wrote a
letter dated March 25, 1999, stating that he has known petitioner
“through his reputation as a quality breeder for more than twenty
years.”
Petitioner argues that he lost money due to a depressed
market during certain years. However, petitioner incurred
consistent losses during the years 1986 through 1997. Those
yearly losses ranged from $80,620 to $131,750 per year. Even
when we consider the fact that petitioner reported gains from the
sale of horses separately on Form 4797, petitioner’s overall
horse activities produced large consistent losses during each of
the years 1986 through 1997.
According to testimony provided by one of petitioner’s
witnesses, the market for Arabian horses began to decline
dramatically around 1985. Petitioner purchased his 78.5-acre
farm in 1986. Petitioner spent substantial amounts of money
refurbishing the house in which he lives and improving the
15Petitioner argues that he only “dabbled” in the industry
prior to 1986. However, at trial, he could not recall whether a
Schedule C, Profit or Loss From Business, relating to horse
breeding was prepared with the earlier income tax returns.
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