Rhett Rance Smith and Alice Avila Smith, et al. - Page 52




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          constructing a house and other buildings.  Beginning in 1998,               
          Rance and LaRhea claimed farm losses pertaining to the Oregon               
          property for an activity described as “crop livestock”.  The                
          primary expenses claimed for 1998 were depreciation, repairs, and           
          plans; there was no income for that year.  The specifics of the             
          claimed expenses for 1998 have not been detailed or adequately              
          explained.                                                                  
               In 1999, Rance purchased P.K., a driving horse; Popcorn, a             
          Royal Dartmoor pony mare in foal; and Leo, a western pleasure               
          mule.  He subsequently acquired Jewels, which was later traded              
          for Mitzi and I Gotta Lotta; none of these horses were entered in           
          competitions.  Mitzi was sold for $6,300 and I Gotta Lotta for              
          $6,000.  No information was offered as to how these horses fit              
          into Rance’s business plan, which he stated involved cutting                
          horses.                                                                     
               Dual Docs was purchased in 2001 for $30,000 and was the                
          first horse entered into competition.  During 2001 and 2002, Dual           
          Docs was in training in Medford, Oregon, with Bobby and Jolene              
          Nelson.  He was sold at a loss in 2004.  This generic information           
          is, in essence, all the record offers regarding Dual Docs.                  
               The following is an analysis of Rance’s cutting horse                  
          activity using the nine factors as a guide.                                 
               1.  Manner in Which the Activity Is Conducted--The fact that           
          a taxpayer carries on the activity in a businesslike manner and             







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