TAX COURT OPINION

Case: Linda Coldiron
Docket Number: 5180-12S
Judge: Marvel
Opinion Type: bench
Filed: 02/22/2013
Pages: 25

UNITED STATES TAX COURT WASHINGTON, DC 20217 CZ LINDA COLDIRON, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) ) Docket No. 5180-12S ) ) ) ) ) OR D E R Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit to petitioner and to respondent a copy of the pages of the proceedings of the above case before Judge L. Paige Marvel in Seattle, Washington, on February 8, 2013, containing her oral findings of fact and opinion. In accordance with the oral findings of fact and opinion, decision will be entered for petitioner. (Signed) L. Paige Marvel Judge Dated: Washington, D.C. February 22, 2013 SERVED Feb 25 2013 Capital Reporting Company 3 1 2 3 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Bench Opinion by Judge L. Paige Marvel February 8, 2013 Linda Coldiron v. Commissioner Docket No. 5180-12S THE COURT: The Court has decided to render oral findings of fact and opinion in this case. And the following represents the Court's oral findings of fact and opinion. The oral findings of fact and opinion shall not be relied upon as precedent in any other case. This case was heard pursuant to the provisions of Section 7463 of the Internal Revenue Code of 1986 as amended, and Rules 170 through 175 of the Tax Court Rules of Practice and Procedure. Pursuant to Section 7463(b), the decision to be entered is not reviewable by any other court, and this opinion shall not be treated as precedent for any other case. This bench opinion is made pursuant to the authority granted by Section 7459(b) of the Internal Revenue Code of 1986 as amended, and Rule 152 of the Tax Court Rules of Practice and Procedure. Hereinafter in this bench opinion, unless otherwise indicated, section references are to the Internal Revenue Code of 1986 (Code) as amended and in effect for the years in issue. Rule references 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 4 1 2 3 4 are to the Tax Court Rules of Practice and Procedure. Some monetary amounts have been rounded to the nearest dollar. Michael D. Hunsinger appeared on behalf of 5 Petitioner. Nick G. Nilan appeared on behalf of 6 7 8 Respondent. Petitioner resided in Washington at the time she filed her Petition. In a Notice of Deficiency issued to 9 Petitioner on December 1, 2011, Respondent determined 10 11 12 13 14 15 16 17 18 deficiencies in Petitioner's federal income tax of $18,729, $8,661, and $7,930 for 2007, 2008 and 2009 respectively, and accuracy-related penalties under Section 6662 (a) of $3,746, $1,732, and $1,586 for 2007, 2008 and 2009 respectively. The deficiencies arise from Respondent's disallowance of all business expenses Petitioner claimed on her 2007, 2008 and 2009 Schedule C profit or loss from business relating to her horse activity. 19 Petitioner did not report any income from the 20 activity on her Schedule C for 2007 and 2009, and she 21 22 23 24 25 reported income.of only $250 on Schedule C for 2008. She claimed expenses of $55,639, $37,814, and $32,249 on her Schedule C for 2007, 2008, and 2009 respectively, resulting in losses of $55,639, $37,564, and $32,249 for 2007, 2008, and 2009 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 respectively. The sole issue we must decide is whether the expenses were ordinary and necessary business expenses deductible under Section 162. Our resolution of that issue depends upon whether 6 Petitioner's horse activity constituted an activity 7 8 9 10 11 12 engaged in for profit within the meaning of Section 183. Respondent argues that Petitioner did not conduct the intention of making a profit. And that Section 183 ·bars Petitioner from claiming the expense and corresponding losses from the activity. 13 Petitioner contents that she intended to make a 14 profit from horse breeding activity. 15 16 17 18 19 20 21 22 The parties have stipulated some of the relevant facts, and we find facts in accordance with these stipulations, which we incorporate in this opinion by reference. We also find facts on·the basis of the. stipulated exhibits and,to the extent we find credible,sworn testimony. FACTS · Petitioner, who resided in Vashon, 23 Washington when she petitioned this Court, grew up 24 25 outside Kansas City, Missouri where her family bred, showed and sold Doberman Pinschers, and also raised 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 horses. Petitioner worked with the animals and helped to care for them. In 1975, Petitioner got a job as an investigative researcher at a station in New York 5 City, and stayed there two years. She then took a 6 reporting job for an ABC affiliate in Kansas City, 7 Missouri, and remained there for three years. She 8 moved to Seattle, Washington in 1980 to take a 9 reporting job at KIRO-TV, a CBS Television affiliate. 10 11 12 13 14 15 16 17 18 19 20 21 22 23 From 1980 to 1987, Petitioner worked at KIRO-TV. as a reporter and anchor. Petitioner started looking for a.property to purchase, and eventually found a 12-acre property on Vashon Island, which she purchased in February 1982 for $65,000. Petitioner was interested in a property that could accommodate a horse operation that she hoped to start eventually. She planned on acquiring a_young stallion with excellent bloodlines C4Dulc that she promote through competition, and then after L retiring the stallion from competition3offer the L 9 stallion's stud services for compensation. The property Petitioner purchased was in rough shape and was not improved by any residents 24 Óut the property was located near an abandoned 25 missile site, which local authorities planned to turn 866.488.DEPO twww.CapitalReportingCompany.com I Capital Reporting Company 7 1 2 into a horse park. After Petitioner purchased the property, 3 Petitioner began to clear the property and collect 4 5 :materials to bui·ld a residence and to make improvements to accommodate her planned horse 6 activity. In 1984, she started construction on the 7 8 9 10 11 12 13 14 15 residence, and moved into the residence about a year later. Petitioner did much of the work herself to cut costs. In 1987, Petitioner left her job at KIRO- TV. and started a sole proprietorship, Coldiron Productions, which offered communication, consulting and video production services to clients. From 1987 to 1994, Petitioner worked at this business and continued to work on the property. In 1994, 16 Petitioner joined the Association of Washington 17 18 19 20 21 22 23 24 25 Business as Vice President of Communications, and she worked there until 1998. In 2000, after doing considerable resea ch into various horse breeds and the profit-making potential of those breeds, Petitioner decided to purchase a 2 and 1/2-year-old purebred Andalusian stallion, Marciano de Galileo (Marciano), for $12,500. Marciano traced his lineage to at least one legendary Andalusian stallion and was entered in the 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 8 1 2 3 registry of the International Andalusian and Lusitano Horse Association (IALHA). Petitioner paid the purchase price in installments and left Marciano in 4 California while she made the payments. During that 5 time, Marciano was in training, consistent with 6 Petitioner's plans to enter him into competition to 7 8 9 10 11 12 13 develop and enhance his reputation as a top7quality Andalusian stallion and ultimately to have him stand at stud. If Marciano proved successful in the show ring, by winning national championships, Petitioner expected his reputation to attract customers who were interested in having their mares inseminated by him. 14 Petitioner believed, on the basis of her research, 15 16 17 18 that a viable stallion can stand at stud for at least 15 years, and can produce semen that can be frozen and sold even after the stallion retires. . Petitioner also expected that her horse 19 activity expenses would be reduced considerably after 20 she retired Marciano from competition and focused on 21 marketing his stud servicesg Ònd she expected that 22 23 24 25 he could command stud fees consistent with being a top stallion. It appears from the reco stud fees for a top Andalusian stallion during the years at 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 9 1 2 3 4 5 issue were in the range ·of $1, 500 to $5, 000 per breeding to a purebred mare, and in somewhat lesser amounts per breeding to mares that were not Andalusian. . Although Petitioner did not prepare a 6 written business plan, she did estimate the out-of- 7 8 9 10 11 12 13 14 15 16 17 pocket cost that she would incur in her proposed horse activity. She estimated that while Marciano was actively competing in shows, he would not generate any income, and that she would incur a variety of costs to maintain, train, and show the horse. However, Petitioner also anticipated that her Vashon Island property would increase in value, and that the increase in value for the property and for Marciano would offset some or all of the costs. To accommodate her horse activity, 18 Petitioner made improvements to the property, 19 including constructing a barn and installing fencing. 20 Petitioner also insured Marciano, estimating his 21 value for insurance purposes at $25,000. 22 23 24 25 Petitioner registered her business name, Ironwood Farms, and obtained a tax registration number. She designed and printed her business stationary and business cards, and printed breeding 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 10 1 2 3 4 5 6 7 8 9 contracts, which she used in attempting to obtain customers. She also opened a business bank account for Ironwood Farms, and she set up and maintained books and records for her horse activity. Petitioner also consulted with and ultimately selected an accountant familiar with the horse industry to prepare her tax returns. Petitioner's books and records were sufficient to substantiate all of the expenses she deducted with respect to her horse 10 activity for the years at issue, 2007 through 2009. 11 As Petitioner was about to begin showing 12 Marciano in 2001, he was injured and could not 13 14 compete. In 2002, Marciano went to the National Championships for the firs.t time, but did not do 15 well. As a result, Petitioner decided to switch 16 17 trainers. She brought Marciano home and arranged for him to be trained iving. In 2004, she placed 18 Marciano with Bruce Howard, one of the industry's top 19 20 21 22 23 24 25 trainers, who was located in California. As Mr. Howard and Petitioner were about to begin the campaign leading up to the.National Championships, Mr. Howard broke his leg and was unable to continue with Marciano's training and show commitments. Petitioner brought Marciano back to the Vashon Island property until she could make a 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 11 1 2 3 4 5 6 decision whether to continue showing Marciano and she could find another trainer. Petitioner solicited the views of Mr. Howard and others experienced in the horse industry, including Glen Wilson, a trainer who worked exclusively for one owner, and who was familiar with 7 Marciano. Both Mr. Howard and Mr. Wilson urged 8 Petitioner to continue with Marciano's training and 9 ·showing ) nd Mr. Wilson obtained permission from his 10 11 12 13 14 15 16 17 18 employer to train Marciano on the side. Under the tutelage of Mr. Wilson, Marciano continued to compete and started to win. In 2005, he entered three events and won championships in two of them. He was reserve champion in the other event. Injuries to Marciano interrupted his show season for 2006, but Petitioner used this time to develop promotional materiats. Among other things, she created a DVD of Marciano's performance at the 2005 19 National Championship, got the website online, 20 21 22 commissioned photographs for use in marketing, and designed and placed advertisements. She constructed a website for her horse 23 activity, which went online in 2006. In order to 24 25 facilitate her marketing of Marciano's stud services, she also arranged for Marciano's semen to be 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 12 1 2 3 4 evaluated. When the initial report showed a slight potential defect, Petitioner arranged for a follow-up report, which confirmed that Marciano had viable semen. As a result, at least in part of these 5 marketing efforts, Marciano was chosen to represent 6 7 8 the Andalusian breed in a national advertising campaign. Petitioner continued to show Marciano, and 9 Marciano co'ntinued to win. During the 2 season, 10 Marciano won numerous national championships. 11 Petitioner retired him to stud after the national 12 13 championships and actively attempted to attract customers for Marciano's stud services. 14 Unfortunately, the economic downturn hit the horse 15 16 17 18 19 20 21 22 23 24 25 industry hard, and customers did not come. In 2008, Petitioner was offered the opportunity to breed Marciano to a mare with dressage characteristics. Dressage was very popular at the time, and Petitioner decided.to explore dressage as an avenue for marketing Marciano's stud services. She had him trained in dressage style movement, and she adjusted her advertising to reflect the dressage training. Petitioner also decided to keep Marciano in the public eye by showing him in Canada, which she could do more inexpensively than in the United 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 13 1 2 3 States. She entered him in four events in the Canadian National Championships, and Marciano won all four events. Upon completion of his show career, 4 Marciano held approximately nine national and 5 international championships, and ten.regional and 6 United States titles in halter, saddle seat, show 7 8 9 hack, driving, and best movement events. Although Petitioner derived personal pleasure from her ownership of Marciano, she did not 10 let it interfere with decisions she made to enhance 11 Marciano's status as a top Andalusian stallion, and 12 13 14 15 16 17 to market his stud services. Petitioner conducted her horse activity in a professional manner consistent with the way we would expect a profitable business to be conducted. Petitioner followed actively promoted Marciano' s bloodlines and reputation as a top stallion, and took steps to get 18 Marciano's foals on the ground. Those efforts 19 20 21 22 produced at least one foal, Marlais de Marciano, which Petitioner has offered for sale for $15,000. Despite Petitioner's marketing efforts, she could not develop an active and profitable career for 23 Marciano standing at stud. Petitioner ultimately 24 determined that she could not afford her horse 25 activity, and in approximately 2011, she ended the 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 1 activity. 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 During the period from 2002 to and including 2011 when Petitioner claimed to have a horse business and filed tax returns with a Schedule C for that activity, Petitioner claimed net losses totally $462,092. During that same period Petitioner t profit from her other Schedule C L. businesses totally $769,332. After subtracting deductions claimed for depreciation and interest, it is readily apparent that Petitioner devoted a substantial amount of her disposable income during the period from 2002 to 2011 to paying the out-of- pocket expenses of her horse activity. Legal Analysis Deductions are a matter of legislative grace, and a taxpayer ordinarily must prove that he is entitled to the claimed deduction. Rule 142(a), INDOPCO, Inc. v. Commissioner, 503 U.S. (1992). In general, Section 1.62 (a) allows a deduction for all y ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or a business. The term trade or business is not L precisely defined by the code or the regulations thereunder. However, for an activity to be considered a trade or business for purposes of 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 15 1 2 3 4 5 6 7 8 9 Section 162, the activity must be conducted with "continuity and regularity", and "the taxpayer' s primary purpose for engaging in the activity must be for income or profit". Commissioner v. Groetzinger, 480 U.S. 23, 35, (1987). Although Petitioner conducted eX~ rse /_. ,breeding -activity while she was working as the sole proprietor of Coldiron Communications, we are satisfied that she conducted her horse breeding 10 activity during the years in issue with continuity 11 and regularity. Nevertheless, in order for an 12 activity to be considered a trade or business within 13 14 15 16 17 18 19 20 21 22 23 24 25 the meaning of Section 162, a taxpayer must conduct the activity with the intent to make a profit. See d. Petitioner·is quite vehement that she engaged in her horse activity at all times with the intention to make a profit. Respondent understandably disputes that Petitioner intended to make a profit from her horse activity, primarily because the activity has resulted in substantial net losses that Petitioner has used every year since 2002 to offset the income she earns from Coldiron Communications. Section 183(a) provides that in the case of 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 16 1 2 3 4 5 6 7 8 9 10 11 an activity engaged in by an individual taxpayer, if the activity is not engaged in for profit, no deduction attributable to such activity shall be allowed, except as provided in Section 183(b). Section 183(b) limits the deductions attributable to an activity not engaged in for profit to (1) deductions that would be allowable for the taxable year, regardless of whether the activity was engaged in for profit, and (2) deductions that would be allowable if the activity were engaged in for profit, but only to the extent that gross income from the 12 activity exceeds the deductions allowable under (1). 13 The test of whether a taxpayer conducted an 14 activity for profit is whether she entered into and 15 16 17 18 19 20 continued the activity with the primary or predominant objective of making a profit. See Section 1.183-2(a), Income Tax Regs.; Mattfield v. Commissioner, 15 F.3d, 1087, (9th Circuit 1994), affirming T.C. Memo 1S2 27 , Wolf v. Commissioner, 4 F.3d, 709, 713, (9th Circuit 1993), affirming T.C. 21 Memo,1991--212; Estate of Power v. Commissioner, 736 22 F.2d, 826, 830, (1st Circuit 1984), affirming T.C. 23 Memo.1983-552. Although a reasonable expectation of 24 profit on a taxpaye s part is not required, the 25 profit objective must be bona fide as determined from 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 17 1 2 3 4 a consideration of the surrounding facts and circumstances. Ruben v. Commissioner, 852 F.2d 1290, (9th Circuit 1988), affirming T.C. Memo.1986-260. Keanini v. Commissioner, 94 T.C. 41, 46, (1990); 5 Golanty v. Commissioner, 72 T.C. 411, 426, (1979), 6 7 8 9 affirmed without published opinion, 647 F.2d, 170, (9th Circuit 1981). Ordinarily, the taxpayer bears the burden of proving by a preponderance of the evidence that she had an honest objective of making a 10 profit when she engaged in the activity at issue. 11 Wolf v. Commissioner, 4 F.3d at 713; Filios v. 1.2 13 14 15 Commissioner, 224 F.3d, 16, 21, (1st Circuit 2000), affirming T.C. Memo,1999-92; Estate of Power v.. Commissioner, 736 F.2d at 828. Whether a taxpayer engaged in an activity 16 with the primary objective of realizingprofit must 17 18 19 20 21 22 23 24 25 be redetermined annually, taking into account all of the relevant facts and circumstances. Section 1.183- 2 (a ) and (b) , Income Tax· Regs . , Filios v. Commissioner, 224 F.3d at 21, Golanty v. Commissioner, 72 T.C. at 426. We give more weight to the objective facts than to the taxpayer's statement of her intent. Section 1.183-2(a), Income Tax Regs.; Barkley v. Commissioner, 878 F.2d, 1438, (9th Circuit 1989), affirming T.C. Memoo1987-577, Engdahl.v. 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company Commissioner, 72 T.C. 1979). We examine the L. 18 following factors in.deciding whether a taxpayer is conducting an activity with the primary intent to make a profit: (1) the manner in which the taxpayer carries on the activity; (2) the expertise of the taxpayer of her advisors; (3) the time and effort expended by the taxpayer in carrying on the activity; (4) the expectation that assets used in the activity 1 2 3 4 5 6 7 8 9 . may appreciate in value; (5) the success of the 10 taxpayer in carrying on other similar or dissimilar 11 activities; (6) the taxpayer's history of income or 12 13 14 15 16 17 18 19 20 21 22 23 24 25 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) elements of personal pleasure or recreation. Section 1.183-2 (b), Income Tax Regs . No factor is determinative, and our A A N conclusion with respect to a taxpayer's profit motive does not depend upon merely counting up those factors that support a finding of profit motive and those that do not. See Section 1.183-2 (b), Income Tax Regs. Taking into account each of the list of factors and considering the facts and circumstances relating to Petitioner's horse activity, we are persuaded by a preponderance of the evidence t'hat 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 19 1 Petitioner intended to make a profit when she engaged 2 3 4 5 in the activity during the years at issue. Our conclusion reflects our findings of fact, our application of the factors, and most importantly an evaluation of Petitioner's professed intent to make a 6 profit, as exemplified in her efforts to develop a 7 horse business, and her continued efforts to market 8 Marciano's stud services. 9 Admittedly, there are factors in this case 10 that might indicate the absence of the genuine profit 11 motive. For example, Petitioner did not depend on 12 13 14 15 16 income from her horse activity, but rself financially through her operation of Coldiron Communications. See Section 1.183-2 (b) (8), Income Tax Regs$ fÊe has a history of losses and has not j generated any significant income or profit from the 17 activity ee section 1.183-2 (b) (6) and (7), Income L 18 19 20 21 22 23 24 25 Tax Regs. nd she derived some personal pleasure from the activity pee Section 1.183-2(b) (9), Income L Tax Regs. . However, the fact that Petitioner derived personal pleasure from her horse activity is insufficient to classify t e activity as engaged in for profit, particularly since the other factors indicate that the a profit motive existed. 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 20 1 2 See Section 1.183-2(b) (9), Income Tax Regs., Holbrook v. Commissioner, T.C. Memo,1993-383. Although A 3 Petitioner may have derived personal pleasure from 4 5 6 7 8 9 10 11 participating in Marciano's training and showing him at various competitions, we believe that she primarily sought recognition and profit. Furthermore, Petitioner's activities were not limited to training and showing Marciano, but included significant research and advertising efforts, which have·minimal recreational elements. While it is true that Petitioner's income 12· form Coldiron Communications enabled her to pursue 13 her horse activity, despite her history of loses "a 14 profit objective may existø despite a history of C 15 16 17 18 19 20 21 losses accompanied by any gains," Holbrook v. Commissioner, T.C. Memo,1993-383. Petitioner L anticipated-earning income from Marciano that would exceed her expenses and generate a profit.. It appears from the.rec,o'rd that Petitioner's efforts to promote Marciano as a top Andalusian stallion were successful in·that his credentials were consistent 22 with other top Andalusian stallions with demonstrated 23 24 25 and successful stud careers. Although the record contains no evidence regarding the start-up period for stud services, the 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company startup phase of horse breeding operations is five to L. ten years. See, for example, Engdahl v. Commissioner, 72 T.C. 659, 669 (1979). Petitioner's losses occurred within this timeframe. In addition, 21 her losses can be explained by events beyond her control, including the economic recession, which significantly effected the horse breeding market. Given her expertise and extensive engagement in marketing and promotional activities, and particularly given Marciano's success at various horse shows, we find that Petitioner had the potential to generate a profit from her horse 1 2 3 4 5 6 7 8 9 10 11 12 13 activity, despite her history of losses and lack of 14 15 16 17 occasional profits. The other factors indicate that Petitioner engaged in her horse activity for profit. At the outset we note that this Court previously has found a 18 profit motive in comparable horse breeding 19 activities. See, for example, Engdahl v. 20 21 Commissioner, 72 T.C. 659; Holbrook v. Commissioner, T.C. Memo,1993-383; Stephens v. Commissioner, T.C. 22 Memo.1990-376. Although Petitioner did not prepare a 23 written business plan, she engaged in the horse 24 activity with a specific plan intended to generate 25 profits. Petitioner initially decided to offer her 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 22 1 2 3 4 5 stallion for stud services after she concluded that raising horses for sale presented significant risks .and uncertainties. Once she decided to offer stud services, she performed extensive research regarding different breeds, and eventually selected the 6 Andalusian breed on the basis of her conclusion that 7 8 9 10 11 the market for Andalusian horses in the United States was growing. She also developed a plan on the basis of her perceived expenses and the amount of income she expected to earn from offering stud services. 12 Petitioner planned to show Marciano at various 13 14 15 16 17 18 19 competitions to generate interest then offer ¿_, fY his stud services. In addition to showing Marciano at numerous horse shows, she also marketed Marciano and his stud services by advertising in magazines, setting up a website and filming and distributing promotional videos of Marciano. See e.g. Engdahl v. Commissioner, 72· T . C. at 667 . Her ef forts led to 20 Marciano being featured on the cover of a horse 21 magazine and in a national campaign for the breed. 22 Petitioner advertised her horse activity in a manner 23 24 25 consistent with a way a similarly situated breeder would approach such activity. See ection 1.183-- U 2(b) (1), Income Tax Regs., see also Engdahl v. 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 23 Commissioner, 72 T.C. at 667. Petitioner also changed her operating 1 1 2 3 methods to improve the profitability of her horse 4 activity. See ection 1.183-2 (b) (1), Income Tax 5 6 7 8 9 Regs., see also Holbrook v. Commissioner, T.C. Memo, 1993-383. After purchasing Marciano, Petitioner decided to show him at various horse shows to develop his reputation, retire him, and then offer him for stud services. When she failed to attract sufficient 10 interest in Marciano following his first retirement, 11 Petitioner decided to show him in the Canadian 12 National Championships to generate interest and keep 13 Marciano in the public eye. She also trained him in 14 15 16 17 18 19 20 21 22 dressage to take advantage of dressage's popularity, and to enhance his marketability as a sire. Petitioner maintained complete and accurate books and records with respect to her horse activity. She prepared a summary recapitulation for each year showing expenses broken down by various categories. See e.g., Engdahl v. Commissioner, 72 T.C. at 666- 667. Her records were sufficient to permit her return preparer to prepare her returns in such a 23 manner that Respondent has accepted her reporting of 24 25 income and expendituresgland questions only the L existence of a profit motive. See Stephens v. 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company Commis sioner, T . C. Memo, 1990-376. Petitioner' s 24 L business ike approach to her horse activity indicates that she had a profit See Óection 1.183- 2 (b) (1), Income Tax Regs. In addition, Petitioner periodically sought and followed advice from experts in the horse breeding and training fields. She prepared for her horse breeding activity by extensively studying its practices, as well as researching various breeds of horses and the market for stud services. She adequately investigated the factors that would affect the profitability of her enterprise. Moreover, 1 2 3 4 5 6 7 8 9 10 11 12 13 Petitioner had a certain level of knowledge and 14 15 16 17 18 19 20 experience regarding horses and animal breeding, even before she started her activity. She also had considerable experlence operating profitable business enterprises. These facts indicate that Petitioner .had a profit motive. See ection 1.183-2 (b) (2), Income Tax Regs., see also Holbrook v. Commissioner, T.C. Memo,,1993-383; Stephens v. Commissioner, T.C. 21 Memo,1990-376. 22 23 24 25 Petitioner spent a significant amount of time developing her horse activity. She worked with experts to train Marciano and L áve o Marciano's L r71 boarding facility in California multiple times per 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 25 1 2 3 4 5 6 year. She entered Marciano in various national shows and compe'titions during 2007 and 2008. She also spent time advertising Marciano's s.tud services in other ways, including filming promotional videos and setting up a website. The time and effort Petitioner devoted to the activity indicate¼ that she had a 7 profit motive. See ection 1.183-2 (b) (3), Income Tax 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Regs. Petitioner invested her time and resources into improving her Vashon Island property so that it could be utilized as a site for her horse activit , and we are convinced that those efforts he property's value. Petitioner's efforts in training and showing Marciano also enhanced his reputation and his value. Petitioner also acquired other assets in the course of conducting her horse activity, including a foal of Marciano's that added value to her activity's balance sheet. Petitioner reasonably anticipated that her investments in the Vashon Island property and in Marciano and other ·asset.s would enhance the ability of her horse activity to make a 22 profit. 23 . It is clear from her testimony that 24 Petitioner was dedicated to horse activity and both 25 intended and expected to make a profit.from such 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 1 activity. After a review of the factors, we conclude 26 thatp_on balance Petitioner has proven by a preponderance of the evidence that her horse activity was an activity engaged in for profit. Consequently, we find that Petitioner is entitled to deduct the expenses claimed on her 2007, 2008 and 2009 Schedule C. To reflect the foregoing, decision will be entered for Petitioner. This concludes the Court's.oral findings of fact and opinion in this case . (Whereupon, at 11:44, the above-entitled matter was concluded.) 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO twww.CapitalReportingCompany.com