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2. Prior Tax Court Case Involving 1997 and 1998
Respondent audited petitioner’s 1997 and 1998 Federal income
tax returns, specifically examining petitioner’s Schedule C horse
activity under the hobby loss rules of section 183. Respondent
determined that petitioner’s horse activity was not an activity
engaged in for profit and disallowed losses taken from that
activity. Petitioner filed a petition with this Court at docket
No. 10918-02 contesting respondent’s determination. On February
22, 2005, Judge Laro entered his decision for respondent. See
Giles v. Commissioner, T.C. Memo. 2005-28. Petitioner appealed
to the Court of Appeals for the Ninth Circuit, which dismissed
the case on August 11, 2005.
3. The Years in Issue
Petitioner timely filed Federal income tax returns for the
years in issue. These returns were prepared by Mr. Wessman.
Attached to each return was a Schedule C listing “breeding &
competing horses” as the principal business and “Falling Water
Arabians” as the business name.
In 1999, petitioner deducted a Schedule C loss of $22,777
and reported adjusted gross income of $106,583. On the attached
Schedule C, petitioner reported gross income of $900 and total
expenses of $23,677.
In 2000, petitioner deducted a Schedule C loss of $17,649
and reported adjusted gross income of $95,291. On the attached
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