- 25 -
abandoned unprofitable methods in a manner consistent with an
intent to improve profitability. Engdahl v. Commissioner,
72 T.C. 659, 666-667 (1979); sec. 1.183-2(b)(1), Income Tax Regs.
Petitioner argues that this factor favors her. She asserts
that she kept accurate books and records for the horse activity
and that she changed her business behavior to reflect the
marketplace. She claims that her books and records were accurate
in that respondent has not challenged the substantiation of the
expenses reported on her Schedules C for the subject years. She
claims that she acted in a businesslike manner by (1) leasing
Borissa before buying it and buying Borissa only after concluding
that its foal, VT Kartel, was of “excellent” quality,
(2) breeding only her best mare on account of space limitations,
(3) not breeding any of her horses from 1992 through 1996,
because she believed that the market included too many bad
Arabian horses, but showing her horses during that period to
increase their value, (4) resuming her breeding activity in 1997
when she believed that Arabian horses were again in demand, and
(5) using written business plans for the horse activity.
We evaluate this factor by analyzing the three subfactors
mentioned above.
A. Maintaining Complete and Accurate Books and Records
The failure to keep financial records such as journals,
ledgers, income and expenses reports, income statements, and
Page: Previous 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 NextLast modified: May 25, 2011