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section 183 to the excess of loss reported minus income. In the
notice of deficiency, respondent computed the deficiencies by
recatagorizing the excess losses as deductible unreimbursed
business expenses on petitioners’ Schedules A, Itemized
Deductions.
OPINION
In this case, we are asked to decide whether petitioners’
continuing horse-boarding activity was a bona fide business
activity within the meaning of section 183 near the end of its
operation. In order to arrive at a decision, our inquiry cannot
separate the taxable years before us from the earlier years of
petitioners’ business operations. Accordingly, we must consider
not only petitioners’ horse-boarding activities in these taxable
years but also their activities in prior years to construct an
accurate picture of petitioners’ total business activity.
Horse-Boarding Activity
The parties disagree as to whether petitioners engaged in
their Schedule C activity with an objective of making a profit
within the meaning of section 183 during the taxable years in
issue.3 In addition, petitioners disagree with respondent’s
3 When the case was called for trial, the parties offered
into evidence Exhibit 14-J, a document showing that respondent
conducted an examination of petitioners’ 1996 Federal income tax
return and the results of the audit. Respondent objected on the
grounds of a lack of foundation, hearsay, and that petitioners
sought to introduce this evidence for estoppel. The Court
(continued...)
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