John R. and Edith M. Garbini - Page 3

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               Respondent determined deficiencies in petitioners’ Federal             
          income taxes and accuracy-related penalties in the following                
               Year        Deficiency        Sec. 6662(a)                             
               1996        $39,965           $7,993.00                                
               1997        36,817            7,363.40                                 
               After concessions by respondent of the medical expense                 
          issues, this Court must decide: (1) Whether petitioners were not            
          engaged in an activity for profit under section 183, (2) whether            
          petitioners were entitled to claimed Schedule F, Profit or Loss             
          From Farming, deductions for the taxable years in issue, and (3)            
          whether petitioners were liable for accuracy-related penalties              
          under section 6662(a) for the taxable years in issue.                       
               Some of the facts in this case have been stipulated and are            
          so found.  Petitioners’ residence was in Myrtle Creek, Oregon, at           
          the time they filed their petition.                                         
               Petitioners timely filed Forms 1040, U.S. Individual Income            
          Tax Return, for 1996 and 1997.  On the Forms 1040 for both years,           
          petitioner John R. Garbini (petitioner) listed his occupation as            
          rancher.  Petitioner Edith M. Garbini’s occupation was listed as            
          housewife.  Both petitioners were senior citizens during the                
          taxable years in issue.  For each taxable year in issue,                    
          petitioners attached to their Form 1040, Schedule F, Profit or              
          Loss From Farming.  On Schedule F for 1996, petitioners reported            
          no gross income and deducted expenses in the amount of $127,341,            

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