Robert A. and Sheila D. Routon - Page 6

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          petitioners’ deductions because petitioners engaged in their                
          horse breeding activity to make a profit.                                   
               A.   Businesslike Manner                                               
               Petitioners invested significantly in advertising and                  
          promotions, attended expositions, used professional trainers,               
          purchased insurance, and kept records in the same manner Mr.                
          Routon has for his successful business ventures.  Further, they             
          abandoned unprofitable methods in a manner consistent with an               
          intent to improve profitability.  See sec. 1.183-2(b)(1), Income            
          Tax Regs.                                                                   
               B.   Expertise                                                         
               Mr. Routon consulted extensively with Arabian horse industry           
          experts.  He also had previous experience with farming and                  
          animals before establishing Ascension and has since immersed                
          himself in the Arabian horse industry.  In addition, Mr. Routon             
          has significant business experience from his other ventures.                
               C.   Time Devoted to the Activity                                      
               Respondent does not contest the fact that petitioners                  
          handled virtually all material aspects of Ascension.  In addition           
          to their full-time engagements, petitioners devoted substantial             
          time and energy caring for and maintaining Ascension’s horses.              
               D.   Expectation That Assets May Appreciate                            
               Assets related to Ascension have appreciated and, in                   
          accordance with petitioners’ plan, may further appreciate.                  

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