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Petitioner also invested in some horses with one of her
clients. Petitioner and her client formed a partnership to make
these investments. The choice of horses to invest in was based
on the recommendations of trainers, at least one of whom was a
world champion. The horses petitioner invested in were sold at
an overall tax gain because of the depreciation, but the majority
resulted in a substantial economic loss on petitioner’s
investment.3
Petitioner filed her Form 1040, U.S. Individual Income Tax
Returns, under a married filing separate status for the taxable
years 1998, 1999, and 2000, and single status for the taxable
years 2001, 2002, and 2004. C.P.A. Borofsky prepared
petitioner’s Forms 1040 for the years 1998 through 2004. For the
tax years 1999 through 2001, C.P.A. Borofsky filed separate
Schedules C, Profit or Loss From Business, for the horse and
design activities with petitioner’s tax returns. Starting in
2002, C.P.A. Borofsky combined the activities on one Schedule C.
Petitioner reported net losses from her horse activities and net
income from Topping White as follows:
3Petitioner took depreciation deductions for the horses
during the tax years at issue, but she did not sell most of them
until after the close of those years. Petitioner did sell one
horse named Sonic in 2002 and reported taxable gain on the sale
of $34,896. Petitioner did not realize an economic loss on the
sale--in fact, she broke even, selling the horse for exactly what
her purchase price was.
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Last modified: November 10, 2007