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order for Claire and Jill to compete in horse shows, they had to
be members of these organizations.
I. Source of Money for the Activity
Initially, petitioners had a sufficient amount in savings
accumulated to fund the startup of the horse activity. At times,
however, the horse activity had cash shortages, and petitioners
needed extra money to purchase horses. On these occasions,
petitioners borrowed money from Dr. Prieto’s medical practice
line of credit and transferred funds out of the medical practice
bank accounts to provide working capital for the horse activity.
J. End of the Activity
As of October 2000, petitioners were closing up the horse
activity. At that time, Jill was 20 and was in Belgium (since
February 2000) working with horses, and Claire was 18.
OPINION
The Horse Activity
Section 183(a) provides generally that, if an activity is
not engaged in for profit, no deduction attributable to such
activity shall be allowed except as provided in section 183(b).
Section 183(c) defines an "activity not engaged in for profit" as
"any activity other than one with respect to which deductions are
allowable for the taxable year under section 162 or under
paragraph (1) or (2) of section 212."
The U.S. Court of Appeals for the Ninth Circuit, to which an
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