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competition winnings and gain from the sale of one of her horses
from her Schedule C to “other income”. Further, the notice
disallowed all of petitioner’s Schedule C horse-related expenses,
explaining:
It has been determined that the amounts claimed as
Schedule C horse racing expenses for the tax years
ending 12/31/99, 12/31/2000 and 12/31/2001 are not
allowable as such since said activity is deemed to be
an activity not engaged into for profit. It has
further been determined that said expenses are
allowable as Schedule A expenses subject to the
applicable Adjusted Gross Income limitations.
Accordingly, your taxable income is increased by the
disallowed expenses adjustment amounts.
The notice also disallowed some of the expenses associated
with petitioner's horse barn/interior design activity,
explaining:
It has been determined that adjustments are
warranted to correct your claimed Schedule C expenses
from your Interior Decorating Activity for the tax
years ending 12/31/1999 and 12/31/2000. The
adjustments are a result of a disallowance of expenses.
The expenses have been disallowed because you have not
established that these amounts were incurred, or, if
incurred, paid by you during the taxable year for
ordinary and necessary business purposes, or that these
expenses were deductible under the provisions of the
Internal Revenue Code. Accordingly, your taxable
income is increased by the adjustment amounts.
Petitioner timely filed her petition with this Court. In
her petition, petitioner assigned error to respondent’s
segregation of the equestrian and interior design activities and
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