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the activity in a manner substantially similar to comparable
businesses that are profitable, and making changes in operations
to adopt new techniques or abandon unprofitable methods are
factors that may indicate that a taxpayer conducted the activity
for profit. Engdahl v. Commissioner, 72 T.C. 659, 666-667
(1979); sec. 1.183-2(b)(1), Income Tax Regs.
Petitioners argue that they kept detailed and well thought
out business plans, maintained business account records with
yearly profit and loss statements, filed stallion reports and
reports of all broodmares and registered all foals with the
Jockey Club, used a bookkeeping service, used business stationery
and a business checking account, made a yearly assessment of the
market, culled nonproductive mares or poorly marketable horses,
made an economic forecast of each horse’s productivity, and
tracked the annual cost of getting each mare and foal to the
thoroughbred sales. Petitioners’ arguments, however, appear to
have been copied from the tax guides for horse owners that they
presented at trial and have little support from the evidence.
Their briefs do not cite the record, and, in most instances,
there is no support in the record for their assertions.
Petitioners offered the 1987 business plan, the 1995
supplement thereto, a 1996 brochure for the Arizona Thoroughbred
Breeders Association Yearling Sale, and Federal income tax
returns for the years in issue to support and substantiate their
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Last modified: May 25, 2011