Michael J. Rozzano, Jr., and Rose Marie Rozzano - Page 8




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               In 1999, petitioners arrived at the conclusion that their              
          horse-boarding activity would never be profitable irrespective of           
          their years of detailed business analyses and budget projections.           
          Sometime in 2000, petitioners decided to sell Sugar Tree as an              
          ongoing business.  By doing so, petitioners had to maintain the             
          property and the boarding activity to show it to prospective                
          buyers as an ongoing business.  Petitioners began to share their            
          intent to sell with colleagues in the horse-boarding and breeding           
          business in the area.  After listing the property in 2001 for               
          $1,495,000, and placing advertisements in at least one national             
          horse breeding periodical, petitioners sold the farm in 2003 for            
          $1,275,000.                                                                 
               Respondent mailed to petitioners on May 2, 2003, a notice              
          of deficiency for taxable years 1999 and 2000.  At the time of              
          the filing of the petition, and pursuant to Rule 171, petitioners           
          requested that the case be conducted as a small tax case.  Before           
          the trial, however, petitioners’ attorney requested, pursuant to            
          Rule 171(c), an order directing that the small case designation             
          be removed.  Respondent raised no objection to petitioners’                 
          request, and filed an answer on March 28, 2006, the trial date.             
          Respondent also requested in his answer that the deficiencies for           
          taxable years 1999 and 2000 be increased to $42,215 and                     
          $35,028.05, respectively.  The increased deficiencies are a                 
          result of respondent’s misapplication of the provisions of                  







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