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amount of time working in the medical practice. Dr. Prieto’s
medical practice employed Lori Sasaki as a bookkeeper.
From 1991 through 1998, petitioners had no substantial
income-producing assets or any other substantial source of income
other than Dr. Prieto’s medical practice. Petitioners reported
the following net profit from Dr. Prieto’s Schedule C, Profit or
Loss From Business, for his orthopedic medical practice:
Year Net Profit
1991 $456,451
1992 548,350
1993 586,073
1994 650,898
1995 695,620
1996 794,424
1997 636,523
1998 737,684
Total 5,106,023
From 1991 through 1998, the net profit of Dr. Prieto’s medical
practice averaged $638,253.
II. The Horse Activity
A. Background
From the age of 4 to 5, Mrs. Prieto rode horses on the farm
where she lived. From the age of 16 to 18, Mrs. Prieto owned a
horse that was an ex-barrel racer. None of these horses were
show jumpers.
Since she was a teenager, Mrs. Prieto had wanted to be
involved in the horse field. Mrs. Prieto always enjoyed horses
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