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maintains complete and accurate books and records may indicate a
profit objective. Sec. 1.183-2(b)(1), Income Tax Regs.
Essentially, Rance’s only record of his activity was a bank
account that, for early years, was not segregated from his
personal checking account. No other records were produced with
respect to his cutting horse activity. No records corroborating
his testimony were produced to show the horses purchased or their
progress and profitability. In particular, no formal business
plan, budgets, operating statements, or analysis was produced to
show the financial management or planning of the activity.
Although Rance testified that he had detailed written business
plans broken down by horse, such plans were not offered into
evidence, and little detail of the plans was described in the
testimony.6
At trial, Rance was unable to provide detail about the
collective deductions claimed on the Schedules F. The returns
were prepared by Mr. Kramer, who used the checkbook to prepare
the Schedules F. Someone with the intent to make a profit from
cutting horses could be expected to have adequate information
6 Petitioners attempted to address their failure to present
detailed evidence by contending that respondent did not question
the substantiation or underlying records during the audit
examination. That, however, does not relieve them of the burden
of showing that they met the requirements of sec. 183. They also
attempted to parlay that same contention into a situation where
the burden of proof would be shifted to respondent under sec.
7491(a). We found that attempt to be untimely and in other
respects ill conceived.
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Last modified: March 27, 2008