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G. Appreciation of Property
The assets of petitioners’ horse breeding activity consist
of the horses. Ms. Bak was purchased in 1979 for $15,000. In
1981, Ms. Bak was insured for $40,000. In petitioners’ proposed
1985 partnership offering, drafted by petitioners, Sassafras and
Tender Moment were valued at $200,000 and $300,000, respectively.
At trial, Mr. Reimer estimated the collective value of Ms. Bak,
Tender Moment, and Sassafras in 1993 to range between $30,000 and
$50,000. No expert testimony was given at trial to support Mr.
Reimer’s valuations, the insurance record valuation, or the 1985
partnership offering valuation. Furthermore, no estimated value
was given for Jessica’s Melody which was sold in 1994 for $2,500.
H. Petitioners’ Advisers
Petitioners consulted an accountant in 1976 “when we set up
the business”. Petitioners showed the accountant their books and
records and were purportedly told by the accountant that they
could handle the record keeping themselves, and that “it would be
a waste of money” to hire the accountant. According to Mr.
Reimer they did not discuss what amounts were deductible because
Mr. Reimer “knew I could” take the deductions. Mr. Reimer read
the regulations and the Internal Revenue Code and filed their
returns based upon his research. At times Mr. Reimer consulted
with the Internal Revenue Service (IRS). Prior to the audit of
this case, petitioners were never audited by the IRS.
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