- 36 -
Income Tax Regs.), affd. without published opinion 273 F.3d 1096
(5th Cir. 2001).
Petitioners make several arguments to defend ERE’s
consistent losses. First, petitioners argue that in 2001 they
were still in the “initial or start-up stages” of their business.
We find petitioners’ argument unconvincing. We have held that
the initial startup phase for a horse breeding operation is 5 to
10 years. Engdahl v. Commissioner, supra at 669. Petitioners
offered no evidence to support a finding that the startup phase
for an exotic animal breeding operation was more than 5 to 10
years. The years at issue were petitioners’ 11th and 12th years
of operation and well beyond the startup phase of their breeding
activity.
Second, petitioners argue that several unforeseen events
occurred that magnified their losses, and they contend that the
difficulties and uncertainties in the exotic animal breeding
business explain their losses. However, the setbacks ERE
experienced do not explain the significant losses incurred each
year.
Petitioners’ losses in comparison with their revenues were
substantial. From 1995 to 2002, petitioners reported losses in 8
consecutive years, which total $2,862,245.18 During that same
18The record does not contain financial information for the
years before 1995. Petitioners introduced no evidence of any net
(continued...)
Page: Previous 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 Next
Last modified: March 27, 2008