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for their children and that they never told anyone that the
horses were for their children. His testimony, however, was
impeached by a letter petitioners wrote in which they state that
they were using money specifically to buy a horse for Jill. The
fact that petitioners did not purchase horses in their daughters’
names is unpersuasive.
Additionally, within months of Jill’s leaving the country
and Claire’s turning 18 petitioners terminated the horse
activity.
H. Conclusion
After reviewing the entire record, we conclude that
petitioners did not engage in the horse activity with the
primary, predominant, or principal purpose and intent of making a
profit within the meaning of section 183.
Section 6662 Penalty
Section 6662 imposes a penalty on an underpayment of tax
required to be shown on a return. Section 6664(c)(1) provides
that no penalty shall be imposed if it is shown that there was
reasonable cause for the underpayment and that the taxpayer acted
in good faith. The determination of whether a taxpayer acted
with reasonable cause and in good faith depends upon the facts
and circumstances. See sec. 1.6664-4(b)(1), Income Tax Regs.
Reliance on the advice of an accountant may demonstrate
reasonable cause and good faith. See id.
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