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improve their chances of turning a profit (i.e., selling inferior
horse stock in 1989, reinvesting the horse sale proceeds in
national quality stock, investigating and implementing the use of
frozen semen, etc.). During the years in issue, petitioners’
prospective horse sales failed because of injury to a horse and
misrepresentations made to petitioners.
Petitioners’ tax returns for 1994 and 1995 were prepared by
an enrolled agent, James G. Joelson, who acquiesced to the tax
treatment of their horse activity. Petitioners’ 1994 return was
filed on October 30, 1995. Respondent disallowed all of
petitioners’ expenses relating to Ascension for 1994 and 1995,
contending that their horse activity was not engaged in for
profit.
OPINION
I. Profit Objective
Section 183 limits the deductions for an activity not
engaged in for profit. Sec. 183(b). This case is appealable to
the Ninth Circuit Court of Appeals. The primary purpose standard
has been followed by that circuit in determining whether the
requisite profit objective exists. See Wolf v. Commissioner, 4
F.3d 709, 713 (9th Cir. 1993), affg. T.C. Memo. 1991-212 (holding
that profit must be the predominant, primary, or principal
objective). Petitioners bear the burden of proving the requisite
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