Kathy A. King - Page 4




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          sole income activity, a used car business.  Petitioner frequently           
          visited the farm, with the children, and assisted minimally in              
          its operation.  However, petitioner maintained or kept records of           
          sales, purchases, and expenses.  She did not maintain a formal              
          set of books but made sure that all records were kept together              
          and submitted to their tax return preparer each year for                    
          inclusion on the joint Federal income tax returns she and                   
          intervenor filed.  Petitioner knew that the cattle-raising                  
          activity was not profitable, but she had expectations that, at              
          some point, the activity would become profitable.  Petitioner and           
          intervenor separated in May 1993, and, thereafter, petitioner no            
          longer maintained records of the cattle-raising activity as she             
          had done in the past; however, she knew that intervenor continued           
          with the activity.  The record does not show in what year                   
          petitioner and intervenor commenced reporting the income and                
          expenses from the cattle-raising activity on their Federal income           
          tax returns, although the testimony at trial indicates that the             
          activity was reported on their joint income tax returns for the             
          years 1989 and thereafter.  For the year 1993, petitioner and               
          intervenor reported gross income of $802, expenses of $28,199,              
          and a net loss of $27,397 from the cattle-raising activity on               
          Schedule C of their return, Profit or Loss From Business.                   
               Petitioner and intervenor were divorced in May 1995.  On               
          December 23, 1996, respondent issued separate notices of                    





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