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horses elsewhere. Petitioner projected that, as his operation
became more experienced and recognized, the potential for profit
would increase.
Petitioner believed that he could breed a better-than-
average thoroughbred horse because of his medical background and
his understanding of physiology and statistical analysis.
Petitioner is a licensed trainer and owner, as well as a
certified horse appraiser. He has taken annual classes on taxes,
business, shoeing horses, veterinary problems, animal husbandry,
and sales preparation. Petitioner wrote several articles for the
thoroughbred horse industry, including one explaining the dosage
system, a horse breeding theory, and others related to various
medical problems in the racehorse industry. Petitioner sent out
bills every month, knew all the mares on the farm, and knew why
particular mares were bred with his stallion.
Petitioners characterize the thoroughbred horse industry as
a “loss” industry and contend that statistically it is possible
to make a profit only once every 25 years. Petitioners have
never made a profit from their Schedule C horse breeding and
racing activity.
From 1980 through 1998 (excluding 1981, 1983, and 1985 for
which no information was introduced), petitioners reported the
following gross receipts and losses with respect to the horse-
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