T.C. Memo. 2000-109

UNITED STATES TAX COURT

FRED B. AND GEORGIA ELANE BERRY, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 1119-98. Filed March 29, 2000.

Rufus E. Wolff, for petitioners.

Donald E. Edwards, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

COLVIN, Judge: Respondent determined that petitioners have

a $15,570 deficiency in income tax for 1995.

The issue for decision is whether petitioners operated their

farm and horse-breeding activity for profit in 1995. We hold

that they did not.
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Section references are to the Internal Revenue Code in

effect during the year in issue. Rule references are to the Tax

Court Rules of Practice and Procedure.

FINDINGS OF FACT

A. Petitioners

Petitioners lived in Roland, Arkansas, when they filed their

petition. They have five grown children, three through previous

marriages. 

Petitioner Elane Berry (Mrs. Berry) spent time on her

grandparents’ farm when she was a child. She bought a horse when

she was 9. When she was 15, she raised a filly born to a mare

that she had bought. She worked full time as an x-ray technician

after she graduated from high school. 

Petitioner Fred Berry (Dr. Berry) graduated from Tulane

University Medical School in 1949. He has practiced medicine

since then. Dr. and Mrs. Berry were married in 1972. Dr. Berry

could not work for 2 months in 1985 because he was ill. In 1991,

Dr. Berry cashed in one of his retirement plans and received

about $17,000.

Dr. Berry and his sister inherited some apartment houses,

which his sister managed, and mutual funds, which Dr. Berry

managed. Dr. Berry’s sister began liquidating the apartment

houses around 1991. The amount Dr. Berry received is not stated

in the record. In 1994, Dr. Berry liquidated some of the mutual
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funds in 1994, but he kept as much as possible because they were

appreciating in value rapidly. 

Mrs. Berry worked part time as the office manager for Dr.

Berry’s surgical clinic until he closed the clinic in 1995. Dr.

Berry has practiced medicine at the White River Rural Health

Service since then. 

B. Petitioners' Farm

1. Starting the Horse-Breeding Activity

Dr. and Mrs. Berry bought a 127-acre farm in Roland,

Arkansas, in 1974 and moved to the farm in 1979. Petitioners

grew soybeans in 1979 and started a horse-breeding activity in

1980 which they called Berry Lane Farm.

2. Racking Horses

Petitioners decided to breed racking horses. Racking horses

and Tennessee walking horses have the same bloodlines. Tennessee

walking horses walk with at least three feet on the ground, overstriding rear legs, a reaching motion in their front legs, and a

nodding head. Racking horses walk with at least one foot on the

ground, a folding motion in their front legs, and heads that are

steadier than those of Tennessee walking horses. 

Petitioners decided to breed racking horses because they

thought racking horses were increasing in popularity faster than

any other kind of horse and were more affordable than Tennessee

walking horses. In addition, Mrs. Berry believed that the
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training techniques used to develop a Tennessee walking horse’s

gait were cruel. 

3. Advice From Others

Heidi Haskins, a friend of petitioners who raised horses,

recommended that they buy a broodmare in foal. Petitioners

bought two broodmares in foal in 1980. However, petitioners did

not have a plan for selling the colts born to those broodmares

and had difficulty selling them. 

At a time not specified in the record, Mrs. Berry sought

advice from Ann Yeiser (Yeiser), who published a racking horse

magazine. Yeiser told Mrs. Berry that petitioners had received

bad advice on what broodmares to buy and that they needed a

better trainer. Yeiser suggested several trainers for

petitioners to use, including Joe Dan Carter (Carter).

Petitioners hired Carter to be their trainer in 1985. 

Carter has been a professional horse trainer since 1976. He

bought a horse from petitioners, apparently in 1995 or later. On

a date not stated in the record, Carter told petitioners that

their horses would sell better if they bred famous Tennessee

walking horses. Carter sold one of petitioners’ horses for

$24,000 in 1996.

James Roberts (Roberts) is an analyst for the Tennessee Farm

Bureau Federation. Mrs. Berry met him in 1988 or 1989. Roberts

has shown racking horses since 1988. He was vice chairman of the
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Racking Horse Association’s promotions committee in 1999. He has

shown and has tried to sell petitioners’ horses at events. 

On a date not specified in the record, Mrs. Berry asked

Roberts for advice about raising horses and farming. Roberts

advised Mrs. Berry to breed her horses with higher quality

horses. He also advised her to train more of her horses as

Tennessee walking horses. He advised her to reduce her farm

expenses and to find better ways to market her animals. 

4. Operating the Farm and Horse-Breeding Activity

Mrs. Berry has managed petitioners’ farm and horse-breeding

activity since 1979. She supervises the farm’s employees and

does manual labor on the farm. Before 1995, Mrs. Berry worked

part time for Dr. Berry. She could schedule her work at the

office to accommodate her work at the farm. She worked on

petitioners’ farm and horse-breeding activity 60 to 70 hours per

week in 1995. Dr. Berry worked on the farm only occasionally. 

Petitioners had one to five employees during each year from

1985 through the year in issue. The record does not state how

many employees petitioners had at any one time.

Mrs. Berry read magazines and journals about horses and took

courses and seminars on breeding at the University of Tennessee

at Murfreesboro. She learned how to artificially inseminate

broodmares. She offered this service for a flat fee. 
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1 Petitioners’ summary states that they had six broodmares

(continued...)

In 1995, Mrs. Berry was a member of the Futurity Breeders

Association, the Amateur Association, the Pleasure Association,

and the Arkansas Racking Horse Association. Mrs. Berry rode a

horse only once or twice in 1995. 

Mrs. Berry takes horses to a 9-day racking horse celebration

held at Decatur, Alabama, every September, at which the Racking

Horse Breeders Association selects the world champions for the

year. Mrs. Berry usually enters horses in a 3-to-4-day show at

Shelbyville, Tennessee, a 4-day spring celebration, and some 1-

day horse shows. Mrs. Berry washes, grooms, and clips her horses

and braids their manes for the shows, but she usually does not

show the horses herself. Potential customers see petitioners’

horses at shows. 

5. Books and Records for the Farm and Horse-Breeding

Activity

Mrs. Berry kept a disbursement journal and general ledger

for the farm from 1981 through the year in issue. She also kept

records of horses that she bought and sold and the births and

deaths of horses on petitioners’ farm. Petitioners had a

separate bank account for their farm.

6. The Number of Horses on Petitioners’ Farm

Petitioners had the following numbers of horses on their

farm:1
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1(...continued)

in 1994. Petitioners do not explain why their records are

inconsistent.

 Brood

Year Show mares Weanlings Yearlings 2 Year 3 Year Stallions

1980 1 2 0 0 0 0 0 

1981 4 8 6 1 0 0 0

1982 4 8 8 6 1 0 1

1983 3 12 9 8 3 0 2

1984 4 16 9 7 7 3 2

1985 6 14 6 7 1 1 1

1986 2 10 4 5 1 0 1

1987 2 8 6 3 1 1 1

1988 4 7 5 5 2 0 1

1989 2 5 2 3 1 0 1

1990 2 5 5 2 1 1 1

1991 1 5 4 5 0 1 1

1992 1 5 4 4 4 0 1

1993 1 5 3 3 4 1 1

1994 1 6 4 3 3 3 1

1995 1 6 4 3 3 2 1

1996 0 6 5 3 3 1 1

1997 0 7 3 4 1 0 1

1998 0 13 9 4 3 0 1

7. The Number of Horses That Petitioners Sold

Petitioners sold the following numbers of horses from 1982

through 1998:
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 Total Number Highest

Year sales sold sales price

1982 $6,900 3 $5,000

1983 352 1 352

1984 16,170 13 3,700

1985 17,471 15 2,500 (twice)

1986 7,400 6 2,000

1987 4,260 4 1,260

1988 9,950 9 2,700

1989 2,000 2 1,500

1990 8,900 4 3,400

1991 5,000 2 3,800

1992 7,150 4 4,000

1993 750 1 750

1994 4,588 4 2,400

1995 4,905 4 2,400

1996 36,600 6 

124,000

1997 6,300 2 3,600

1998 2,000 1 2,000

1 Petitioners’ next highest price in 1996 was $3,750.

8. Petitioners' Income From Farm Products, Horse Show

Prizes, Stud Fees, and Boarding Fees

Mrs. Berry usually entered horses in six to eight shows each

year. Petitioners boarded horses for other people and provided

stud services from 1982 through 1997. Petitioners received the

following amounts of horse show prize money, stud fees, and fees

for boarding horses:
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Horse

show

prize Stud Boarding

Year Total money fees fees 

1982 $2,137 $471 -0- $1,666

1983 402 117 $250 35

1984 1,423 50 1,050 323

1985 1,524 25 1,300 199 

1986 2,250 -0- 1,850 400

1987 1,552 103 1,200 249

1988 400 -0- 400 -0-

1989 1,005 211 500 294

1990 3,227 1,343 930 954

1991 3,957 2,331 1,054 572

1992 5,274 2,263 1,050 1,961

1993 8,935 1,634 2,250 5,051

1994 7,036 1,085 1,200 4,751

1995 6,607 1,765 400 4,442

1996 14,308 2,469 3,100 8,739

1997 17,253 3,350 5,100 8,803

Petitioners received the following amounts of income from

growing and selling grain (includes wheat and soybeans), pecans,

and hay and from hauling horses:

 Horse

Year Total Grains Pecans Hay hauling

1981 $1,396 – -- $1,396 --

1982 6,494 $5,428 -- 1,066 --

1983 2,809 2,533 -- 276 --

1984 4,472 3,938 -- 534 --

1985 8,067 7,670 –- 397 --

1986 20 – -- 20 --

1987 2,197 2,030 -- 167 --

1988 13,894 13,432 $120 342 --

1989 8,703 6,851 -- 1,852 --

1990 2,150 1,329 -- 821 --

1991 9,514 8,295 –- 527 $692

1992 10,476 4,347 335 752 5,042

1993 10,703 3,385 95 1,883 5,340

1994 13,974 5,261 166 956 7,591

1995 6,377 3,630 385 1,065 1,297

1996 5,392 3,331 98 1,695 268

1997 6,650 2,979 75 3,184 412
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2 The amounts in the first three columns are from

petitioners’ financial records. The amounts in the last column

are from petitioners’ income tax returns.

C. The Racking Horse Association Registry

The Racking Horse Association maintains a registry of racking

horses. It planned to close its registry around 1995 to limit the

racking horses in the registry to those with a specific gait. 

D. Petitioners' Farm and Nonfarm Income and Farm Losses

Petitioners had the following amounts of gross receipts and

losses from their horse and farm activity from 1982 through 1997:2

 

Farm

 loss not Farm loss Reported

 Gross including including Schedule F

 Year receipts1 depreciation depreciation loss 

 1982 $15,531 $75,980 $113,480 $115,186

 1983 3,564 93,830 132,070 132,385

 1984 22,015 91,922 131,341 N/A

 1985 27,037 59,215 94,675 104,923

 1986 9,670 52,846 58,096 81,077

 1987 8,009 53,787 63,787 66,751

 1988 24,244 32,145 35,595 39,340

 1989 11,708 35,596 39,628 49,130

 1990 14,277 36,458 40,348 50,360

 1991 18,470 36,299 41,285 45,310

 1992 22,900 32,516 38,209 42,535

 1993 20,388 41,246 41,246 45,290

 1994 25,598 39,309 43,178 45,845

 1995 17,890 38,128 41,247 43,596

1982-95 

 Total 241,301 719,277 914,185 861,728

 1996 56,300 29,900 45,158 37,689

 1997 30,203 39,116 39,116 42,539

1982-97

 Total 327,804 788,293 998,459 941,956

1 This column is the total income from paragraphs B-7 and B-8

above.
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Petitioners reported on their income tax returns the

following amounts of nonfarm income from 1982 through 1997:

 Pension Nonfarm

Year Wages income income 

1982 $239,580 $260,552

1983 188,900 240,135

1984 N/A N/A

1985 124,905 148,064

1986 93,500 107,521

1987 101,000 121,102

1988 70,000 78,497

1989 51,200 $38,492 101,178

1990 28,500 104,000 142,238

1991 54,000 47,000 116,373

1992 126,883 28,000 169,090

1993 119,700 24,500 157,815

1994 144,340 236,966

1995 139,390 154,309

1982-95 

 Total 1,481,898 241,992 2,033,840

1996 144,854 152,416

1997 144,354 170,963

1982-97 

 Total 1,771,106 241,992 2,357,219

Nonfarm income includes wages and proceeds from the sale of

investments and inherited property. 

OPINION

A. Whether Petitioners Operated Their Farm and Horse-Breeding

Activity for Profit in 1995

The issue for decision is whether petitioners operated their

farm and horse-breeding activity for profit in 1995. A taxpayer

conducts an activity for profit if he or she does so with an

actual and honest profit objective. See Osteen v. Commissioner,

62 F.3d 356, 358 (11th Cir. 1995), affg. in part and revg. on
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other issues T.C. Memo. 1993-519; Surloff v. Commissioner, 81

T.C. 210, 233 (1983); Dreicer v. Commissioner, 78 T.C. 642, 645

(1982), affd. without opinion 702 F.2d 1205 (D.C. Cir. 1983). In

deciding whether petitioners operated their horse-breeding

activity for profit, we apply the following nine nonexclusive

factors: (1) The manner in which the taxpayer carried on the

activity; (2) the expertise of the taxpayer or his or her

advisers; (3) the time and effort expended by the taxpayer in

carrying on the activity; (4) the expectation that the assets

used in the activity may appreciate in value; (5) the success of

the taxpayer in carrying on other similar or dissimilar

activities; (6) the taxpayer's history of income or loss with

respect to the activity; (7) the amount of occasional profits, if

any, which are earned; (8) the financial status of the taxpayer;

and (9) whether elements of personal pleasure or recreation are

involved. See sec. 1.183-2(b), Income Tax Regs. No single

factor controls. See Osteen v. Commissioner, supra; Brannen v.

Commissioner, 722 F.2d 695, 704 (11th Cir. 1984), affg. 78 T.C.

471 (1982); sec. 1.183-2(b), Income Tax Regs. Petitioners have

the burden of proof. See Golanty v. Commissioner, 72 T.C. 411,

426 (1979), affd. without published opinion 647 F.2d 170 (9th

Cir. 1981).
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B. Whether We Should Treat 1995 as the Startup Year of

Petitioners’ Farm and Horse Activity

Petitioners contend that we should treat 1995 as the startup

year of their farm and horse activity because, in 1995, Mrs.

Berry began to work full time on the farm, to supervise employees

more closely, to organize activities better, and to repair and

expand the barn to accommodate more broodmares. Petitioners

contend that, even if they did not have a profit motive before

1995, they did in 1995. 

It is true that Mrs. Berry worked full time on the farm in

1995. However, we do not view Mrs. Berry’s change to full time

as the commencement of petitioners’ farm and horse activity. The

record does not show how much more time Mrs. Berry devoted to the

farm in 1995 than in prior years. Mrs. Berry worked part time as

Dr. Berry’s office manager before 1995. She had a flexible

schedule that allowed her to work on the farm when needed. 

Repairing and expanding the barn was not the commencement of

petitioners’ farm and horse activity because the barn had

accommodated 16 broodmares before 1995. Petitioners’ use of

improved breeding stock after 1995 is not directly relevant to

whether petitioners had a profit motive during 1995.

Petitioners contend that their hay, stud, and horse boarding

activities increased in 1995 and thereafter when Mrs. Berry

worked on the farm full time. We are not convinced that their

activities increased significantly or even at all in 1995 because
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petitioners’ gross receipts in 1995 from (a) hay were less than

in 1981, 1982, 1987, and 1993; (b) stud fees were less than from

1984 to 1987, the same as in 1988, and less than from 1989 to

1994; and (c) boarding fees were less than in 1993 and 1994.

Petitioners contend that this case is like Feistman v.

Commissioner, T.C. Memo. 1982-306, affd. 718 F.2d 1110 (9th Cir.

1983), in which we held that a taxpayer changed a stamp and coin

collecting hobby to a business. We disagree. During the years

in issue, the taxpayer in Feistman undertook activities

consistent with those of a retailer and inconsistent with those

of a hobbyist. He (a) bought 100 first day covers for each new

stamp issued, far more than he needed as a collector; (b)

regularly displayed merchandise for sale at shows and swap meets;

(c) received a business tax registration certificate with a

“retail sales” classification; (d) bought and sold inventory; and

(e) received authority from credit card companies to accept

charges. The taxpayer in Feistman changed his activity in

several respects that showed that he operated it for profit. 

Petitioners did not.

We do not treat 1995 as the first year of petitioners’ horse

and farm activity.
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C. Applying the Factors

1. Manner in Which the Taxpayer Conducts the Activity

Maintaining complete and accurate books and records,

conducting the activity in a manner substantially similar to

comparable businesses which are profitable, and making changes in

operations to adopt new techniques or abandon unprofitable

methods suggest that a taxpayer conducted an activity for profit. 

See Engdahl v. Commissioner, 72 T.C. 659, 666-667 (1979); sec.

1.183-2(b)(1), Income Tax Regs.

Petitioners maintained a separate general journal and bank

account for the farm. However, they did not have a written

business plan, income projections, or profit plans. This

suggests that they did not operate their farm and horse activity

for profit. See Westbrook v. Commissioner, 68 F.3d 868, 873, 878

(5th Cir. 1995) (no written business plan, financial projections,

or estimates for return of capital), affg. T.C. Memo. 1993-634;

Osteen v. Commissioner, T.C. Memo. 1993-519; cf. Phillips v.

Commissioner, T.C. Memo. 1997-128 (written financial plan not

required for 32-horse farm where business plan evidenced by

action).

Petitioners contend that they had a business plan, which was

for Mrs. Berry to work full time on the farm and for them to have

at least 11 broodmares. We disagree. Petitioners did not

credibly show how they intended to make the farm profitable. 
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Petitioners had at least 11 broodmares in 1983, 1984, and 1985,

and had some of their largest losses in those years.

Petitioners contend that they spent cautiously in 1995,

which shows that they had a profit objective. We are not

convinced that petitioners spent cautiously in 1995. They spent

less in 1989, 1990, 1991, and 1993 than they did in 1995. Also,

petitioners’ level of spending is inconsistent with their claimed

business plan of having 11 good-quality broodmares. To comply

with their business plan, it appears that petitioners needed to

spend more to buy more broodmares. This factor favors

respondent.

2. The Expertise of the Taxpayers or Their Advisers

Efforts to gain experience, a willingness to follow expert

advice, and preparation for an activity by extensive study of its

practices may indicate that a taxpayer has a profit motive. See

sec. 1.183-2(b)(2), Income Tax Regs.

By 1995, Mrs. Berry had learned a lot about breeding and

raising racking and Tennessee walking horses. People sought her

advice about horse breeding. However, there is no evidence that

Mrs. Berry sought or acquired expertise in the financial aspects

of horse breeding.

Petitioners contend that they consulted Carter, Roberts, and

Yeiser as experts. There is no evidence that Carter or Yeiser

advised petitioners how to make their farm and horse activity
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profitable. At a time not specified in the record, Roberts

advised Mrs. Berry to cut her farm expenses, improve her

marketing, concentrate on Tennessee walking horses, and increase

and improve her broodmare bloodlines. There is no evidence that

Mrs. Berry followed his advice, except to buy four broodmares

with better bloodlines in 1998. Petitioners did not adequately

seek and follow advice relating to the economic aspects of their

horse activity. See Burger v. Commissioner, 809 F.2d 355, 359

(7th Cir. 1987), affg. T.C. Memo. 1985-523; Glenn v.

Commissioner, T.C. Memo. 1995-399, affd. without published

opinion 103 F.3d 129 (6th Cir. 1996); see also Golanty v.

Commissioner, 72 T.C. at 432. This factor favors respondent.

3. Taxpayer's Time and Effort

The fact that a taxpayer devotes much time and effort to

conducting an activity may indicate that he or she has a profit

objective. See sec. 1.183-2(b)(3), Income Tax Regs. Mrs. Berry

spent long hours on the activity beginning in February 1995. 

This factor favors petitioners.

4. Expectation That Property Used in the Activity Would

Appreciate in Value

A taxpayer may intend to make an overall profit when

appreciation in the value of assets used in the activity is

realized. See Bessenyey v. Commissioner, 45 T.C. 261, 274 (1965),

affd. 379 F.2d 252 (2d Cir. 1967); sec. 1.183-2(b)(4), Income Tax

Regs. There is an overall profit if net earnings and appreciation
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are enough to recoup losses sustained in prior years. See Bessenyey

v. Commissioner, supra. Petitioners concede that they did not

expect their land or any asset other than their horses to increase

in value but contend that the offspring of the higher quality

broodmares that they bought after 1995 are worth more than those

born in prior years. We disagree. Petitioners offered no evidence

of the value of offspring of higher quality broodmares they bought

after 1995. This factor favors respondent.

5. Taxpayer's Success in Other Activities

The fact that a taxpayer previously engaged in similar

activities and made them profitable may show that the taxpayer has a

profit objective. See sec. 183-2(b)(5), Income Tax Regs. Mrs.

Berry’s work as office manager at her husband’s clinic is not

sufficiently similar to operating a farm and horse activity to

indicate that she could do so successfully. This factor favors

respondent.

6. Taxpayer's History of Income or Losses

A history of substantial losses may indicate that the taxpayer

did not conduct the activity for profit. See Golanty v.

Commissioner, supra at 427; sec. 1.183-2(b)(6), Income Tax Regs. A

taxpayer may have a profit objective even if the activity has a

history of losses, see Bessenyey v. Commissioner, supra at 274,

because losses during the initial stage of an activity do not

necessarily indicate that the activity was not conducted for profit,
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see Engdahl v. Commissioner, 72 T.C. at 669; sec. 1.183-2(b)(6),

Income Tax Regs. We have said that the startup phase of a horsebreeding activity may be 5 to 10 years for standard bred horses. 

See Engdahl v. Commissioner, supra.

Petitioners have a long history of substantial losses in their

farm and horse activity. Petitioners contend that they incurred

losses due to unforeseen circumstances such as Dr. Berry’s 2-month

illness in 1985 and the reopening of the racking horse registry in

1997. We disagree. We are not convinced that Dr. Berry’s illness

in 1985 prevented petitioners from buying broodmares in 1992, 1993,

1994, and 1995, because in those years income from his medical

practice had increased to more than $119,000, and he had additional

income from other sources. Petitioners contend that the reopening

of the racking horse registry in 1997 caused their losses in 1995. 

We disagree. Petitioners have offered no evidence about the

reopening of the registry or how the reopening caused their losses

in earlier years. This factor favors respondent. 

7. Amount of Occasional Profits, If Any

Small occasional profits with large continuous losses do not

indicate that the taxpayer had a profit objective. See sec. 1.183-

2(b)(7), Income Tax Regs. Petitioners had gross receipts from

selling pecans and grains, from providing stud services, and

boarding and hauling horses. The record does not indicate the

amount of expenses that were related to these activities. Even if
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those activities were profitable, those small amounts of receipts do

not offset the large losses that petitioners had each year from 1980

to 1995. This factor favors respondent.

8. Financial Status of the Taxpayer

The receipt of a substantial amount of income from sources

other than the activity, especially if the losses from the activity

generate large tax benefits, may indicate that the taxpayer does not

intend to conduct the activity for profit. See sec. 1.183-2(b)(8),

Income Tax Regs. Petitioners had nonfarm income of $154,309 in

1995. Their nonfarm income exceeded their farm losses from 1980 to

1997. See Rinehart v. Commissioner, T.C. Memo. 1998-205 (taxpayers

lacked a profit objective where taxpayer earned between $166,000 and

$170,000 per year during the years in issue). Petitioners’ losses

sheltered a large amount of their income in 1995. This factor

favors respondent somewhat.

9. Elements of Personal Pleasure

The presence of recreational or personal motives in conducting

an activity may indicate that the taxpayer is not conducting the

activity for profit. See sec. 1.183-2(b)(9), Income Tax Regs. A

taxpayer's enjoyment of an activity does not show that the taxpayer

lacks a profit objective if the activity is, in fact, conducted for

profit as shown by other factors. See Jackson v. Commissioner, 59

T.C. 312, 317 (1972); sec. 1.183-2(b)(9), Income Tax Regs. However,

if the possibility for profit is small compared to the possibility
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3 Some of petitioners’ activities may have been for profit,

such as those involving their crops and the hauling and boarding

of horses. However, petitioners do not contend that they had

more than one activity, and they have not provided any basis for

us to decide the amount of their expenses that were related to

activities that may have been for profit.

for gratification, the latter possibility may be the primary

motivation for the activity. See White v. Commissioner, 23 T.C. 90,

94 (1954), affd. per curiam 227 F.2d 779 (6th Cir. 1955). 

Petitioners point out that no person in their family rode horses for

pleasure in the year in issue. However, Mrs. Berry testified that

she has always enjoyed horses. This factor is neutral.

D. Conclusion

We conclude that petitioners did not operate their farm and

horse-breeding activity for profit in 1995 for purposes of section

183.3

The record contains information about events that occurred

after 1995, on which both parties rely. The post-1995 information

shows that the pre-1995 pattern of activity and losses generally
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4 Petitioners sold one horse for $24,000 in 1996. This

appears to be an anomaly because the sales prices of all of the

other horses that they sold after 1995 were similar to sales

prices before 1995. Petitioners received the notice of

deficiency in this case in 1997, and they expanded the number of

higher quality broodmares in 1998. Petitioners’ actions after

1997 may have been influenced by the pendency of this case and

show little or nothing about their intent in 1995. See Taube v.

Commissioner, 88 T.C. 464, 482 (1987); Lundquist v. Commissioner,

T.C. Memo. 1999-83; Brockenbrough v. Commissioner, T.C. Memo.

1998-454.

continued through 1998.4 Our conclusion would be the same whether

or not we considered post-1995 events.

To reflect the foregoing,

Decision will be entered

under Rule 155.