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petitioners claim that they eliminated unprofitable breeding
groups and expanded profitable breeding groups. Second,
petitioners contend that they minimized the expenses of ERE by
performing necessary duties themselves. For example, Mrs.
Knudsen learned to perform microchip implantation, and Dr.
Knudsen landscaped the property and attended to the animals’
health needs. Finally, petitioners argue that they decreased
expenses by rotating the grazing pastures to reduce the amount of
hay purchased, by purchasing animals that could be housed in the
existing facilities, and by purchasing feed in bulk.
Petitioners have not convinced us that the changes had a
material impact on ERE’s profitability. See Golanty v.
Commissioner, supra at 428 (changes must be sufficient to alter
materially the prospects of making a profit). The amounts of
petitioners’ losses did not decline despite petitioners’ claims
that they cut costs and eliminated unprofitable breeding groups.
Petitioners’ greatest losses were during 2000 and 2001, more than
10 years after starting their breeding activity. Further,
petitioners did not expand or eliminate any breeding lines using
an economic analysis of the individual breeds.
Finally, we note that petitioners’ marketing and sales
efforts have changed little since the inception of the activity.
Relatively little has been spent on advertising. Cf. Burrow v.
Commissioner, T.C. Memo. 1990-621. In fact, petitioners incurred
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