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A. Complete and Accurate Books and Records
The fact that a taxpayer carries on the activity in a
businesslike manner and maintains complete and accurate books and
records may indicate a profit objective. Sec. 1.183-2(b)(1),
Income Tax Regs. Here, the balance of the facts supports
respondent’s contentions.
Petitioner commingled funds from her horse showing and
breeding activities with her personal finances. While not
determinative, commingling funds can be one indication that an
activity is engaged in as a hobby and not for profit. See
Ballich v. Commissioner, T.C. Memo. 1978-497.
Additionally, petitioner, an attorney, did not have any
written contracts with the professionals she hired to care for,
train, and show her horses.
Petitioner failed to keep any specific books and records
with respect to the horse activities’ profitability and
management, and any records she did maintain were poorly
organized and inaccurate.9
Petitioner failed to develop a budget or a business plan.
While budgets and business plans are not required, a lack of
information upon which to make educated business decisions tends
to belie a taxpayer’s contentions that an activity was pursued
9 Although petitioner did not accurately track and report
her expenses for the horse showing and breeding activities,
substantiation was not raised as an issue in this case.
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Last modified: May 25, 2011