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A. Manner in Which the Activity Is Conducted
Petitioners hired professionals to keep books and records
and to prepare their returns. They also hired professionals to
work in the horse activity as grooms, braiders, horseshoers, and
veterinarian. While these facts weigh in petitioners favor, they
are not the only facts presented to the Court.
While petitioners did keep records, they did not have bills
of sale for all their horses, and the records appear to be
faulty. Dr. Prieto could not explain why the show costs and
entry fees were so low for 1996. Mrs. Prieto testified that they
understated the horse activity’s show costs for 1996. We agree.6
Even though they had records reporting substantial losses,
petitioners never developed a written business plan or made a
budget. Dr. and Mrs. Prieto testified that the “business plan”
of the horse activity was to buy, train (develop), show, and sell
horses. This is not a plan; this is merely a statement of what
the horse activity did. While petitioners wrote out “business
goals” for 1994 and 1995, they never developed a plan to achieve
these goals.
Petitioners claimed to have hired other riders, such as
Annalee Bennet, to show the horses. The horse show entry forms
for 1994 and 1995 list only petitioners’ daughters and Nicole as
6 We note that the likely effect of this understatement was
to create the appearance of a profit for the horse activity for
1996 when none in fact existed.
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