Sheila Mae Howard - Page 6

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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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