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breeding activity. Petitioner had been raised around, and was
familiar with, horses.
Prior to starting the horse breeding activity, petitioner
consulted horse trainers and breeders about the nature of horse
breeding. Petitioner’s objective was to enter horses in
“cutting” competitions and then later breed the horses.4
In or around 1995, petitioner purchased her first horse.
Later, petitioner purchased a second horse for use in the horse
breeding activity. Petitioner hired a professional trainer for
the horses. The horses were originally stabled and trained in
Georgia, about 265 miles from petitioner’s Florida residence.
Petitioner and her children would visit the stable approximately
three weekends each month.
Petitioner did not prepare a written business plan with
respect to her horse breeding activity. Petitioner’s records
consisted solely of canceled checks and a few receipts.
C. Petitioner’s Income Tax Returns
Petitioner filed a Form 1040, U.S. Individual Income Tax
Return, for each of the taxable years at issue, and reported her
wages from her employment as a paralegal. On her return for each
of the taxable years at issue, petitioner identified Carl as
either “child” or “son” and claimed a dependency exemption for
4 “Cutting” was described by petitioner as training a horse
to “cut” one cow from a herd of cattle.
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Last modified: May 25, 2011