Nora E. Keating and Richard L. Shearer - Page 8




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               In 2002, proceeds received from the sale of Lady and Trouble           
          were deposited into one of petitioner’s personal checking                   
          accounts, not into the Nora Ellen Keating Stony Creek Arabians              
          bank account.                                                               
               Petitioner recorded horse activity expenses on a ledger by             
          category and retained receipts relating to her horse activity in            
          a folder by month of transaction.  Petitioner kept records of               
          training, ovulatory cycles, and vaccinations relating to each               
          horse.                                                                      
               Petitioner did not associate her horse activity expenses               
          with individual horses.                                                     
               During the years in issue, petitioner did not prepare or               
          have prepared a written business plan or financial projections              
          relating to her horse activity.                                             
               For 1996 through 2000, petitioners timely filed joint                  
          Federal income tax returns, and for 2001 and 2002 petitioner                
          timely filed an individual Federal income tax return.                       
               Petitioners’ joint Federal income tax returns for 1996                 
          through 2000 and petitioner’s individual Federal income tax                 
          returns for 2001 and 2002 included a Schedule F, Profit or Loss             
          From Farming, on which it was indicated that the principal                  
          activity was “horses”.                                                      










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