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in 2003 show that they continued to conduct their horse-boarding
activities in a businesslike manner.
Even after petitioners’ realization with respect to the
profitability of their horse-boarding activities, their actions
illustrate steps taken to mitigate costs and to try to achieve at
least a break-even point until the business could be sold.
First, petitioners held contracts for stall rentals which they
did not change, nor could they change, for fear of being in
breach. Second, petitioners made active attempts to reduce hay
and feed costs. Third, petitioners continued to rent stalls,
maintain their ongoing operations, and even moved back to the
property on a full-time basis in 2000. Finally, and perhaps most
significantly, the amount of operating costs borne by petitioners
comprised a large share of their wage income in the years at
issue. Petitioners had wages of $221,968 in 1999, and $159,018
in 2000, and reported net out-of-pocket expenses in those years
from Sugar Tree of $76,687 and $73,722,4 respectfully. These net
out-of-pocket expenditures were 34 percent and 46 percent of
petitioners’ wages in 1999 and 2000, respectfully. We cannot
conclude, based on the entirety of the foregoing, that their
activities turned from business into hobby overnight in 1999
based upon Mr. Rozzano’s admission at trial.
4 For 1999, gross income of $53,204, less cash expenses
before depreciation of $129,891. For 2000, gross income of
$58,109, less cost of expenses before depreciation of $131,831.
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