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return).17 Petitioners’ 2002 return included Form 4797 (peti-
tioners’ 2002 Form 4797). In Form 4797, Part I, petitioners
reported, inter alia, a loss of $102,281. In an explanatory
statement to petitioners’ 2002 Form 4797, petitioners claimed
that that loss was attributable to, inter alia, the sale of two
of the racing and breeding horses that Kildare Timmy distributed
to Mr. Ramsburg. In that explanatory statement, petitioners
claimed the following with respect to the sale of those two
horses:
Date Date Cost Gain
Horse acquiredsold Sales price Depreciationor basisor (loss)
Northern Crush 01/01/98 01/02/02$0 $4,439 $7,017 ($2,578)
Tarport Reactor 01/01/98 12/11/02368 2,158 3,411 (885)
In Part III of petitioners’ 2002 Form 4797, Gain From
Disposition of Property Under Sections 1245, 1250, 1252, 1254,
and 1255, petitioners also claimed the following with respect to
a horse named Yankee Bardot:
Gross Cost or other Depreciation
Date Date sales basis plus allowed Adjusted
acquired sold price expense of saleor allowablebasis Total gain
01/01/98 07/31/02 $1,200 $398 $253 $145 $1,055
Respondent issued to petitioners a notice for their taxable
years 1996, 1997, and 1998. In the notice, respondent, inter
alia, disallowed petitioners’ claimed nonpassive losses.18 The
17The record does not contain any tax return of petitioners
for 2000 or 2001.
18Petitioners’ claimed nonpassive losses included petition-
ers’ ordinary passive losses and petitioners’ sec. 1231 passive
(continued...)
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