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if so how, the activity could be operated profitably or to make
informed business decisions on a periodic basis. During his
investigation of horse breeding, Dr. Harrington was told by
professional breeders that it would be difficult to make a profit
from breeding Appaloosa horses.
The economics of petitioners’ operation showed that they
could not make a profit from their horse-breeding activity.
Petitioners consistently incurred expenses of more than $10,000
per year. Breeding their stallion only two or three times per
year would yield at best only two or three foals per year (horses
have an 11-month gestation period), worth at most $7,500 in the
unlikely event that all three foals had Appaloosa
characteristics. Petitioners’ horse-breeding activity was a
money-losing proposition without hope of success.
Citing Engdahl v. Commissioner, 72 T.C. 659 (1979),
petitioners argue that because Dr. Harrington did most of the
work himself, and that much of this work was not pleasurable, he
should be deemed to have engaged in the activity in a
businesslike way. We disagree. In Engdahl, after Dr. Engdahl’s
retirement as an orthodontist, the Engdahls purchased a ranch to
breed American saddle-bred horses after receiving professional
advice on operating the ranch profitably. Due to unexpected
adverse market conditions, the ranch was not profitable. The
Court found that the Engdahls operated their business in the same
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