T.C. Memo. 2007-177



                     UNITED STATES TAX COURT



 MICHAEL J. ROZZANO, JR. AND ROSE MARIE ROZZANO, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 12344-03.                Filed July 3, 2007.



     Paul A. Nidich, for petitioners.

     Terry Serena, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION



     GOLDBERG, Special Trial Judge:     Respondent determined

deficiencies in petitioners’ Federal income tax of $25,108 for

taxable year 1999 and $19,610.07 for taxable year 2000.    Unless

otherwise indicated, all section references are to the Internal
                               - 2 -

Revenue Code in effect for the years in issue, and all Rule

references are to the Tax Court Rules of Practice and Procedure.

     The issue for decision is whether petitioners’ ongoing

horse-boarding activity was a bona fide business activity within

the meaning of section 183 during the taxable years in issue.

                         FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

The stipulation of facts and the exhibits attached thereto are

incorporated herein by this reference.   Petitioners resided in

Loveland, Ohio, on the date the petition was filed in this

case.

History of Petitioners’ Horse-Boarding Activity

     Petitioners purchased a tract of land in Clermont County,

Ohio, in May 1989 for $450,000.   At the time of purchase, the

property contained one barn, one indoor horse arena, pastures,

and a residence.   Petitioners purchased the property to provide

their family, including their two adult children, with ample land

and a home where they all could live and enjoy their shared love

of horses.   At the time of the purchase, petitioners’ adult

daughter was involved in the horse industry in Memphis,

Tennessee.   Shortly after acquiring the property, petitioners

purchased at least one horse, and petitioner wife (Mrs. Rozzano)

engaged in a remodeling of the residence.   Petitioners maintained

the property as their primary residence between 1989 and 1992.
                               - 3 -

     In 1992, petitioner husband (Mr. Rozzano) was hired to be

the president of Armour Swift Eckridge, Inc., a publicly held

corporation.   Mr. Rozzano’s new position required that he

relocate to Chicago, Illinois, which was approximately 5 hours

from their residence.   At this time, petitioners decided that

instead of selling the property, which they had dubbed “Sugar

Tree Farm” (Sugar Tree), they would try to operate a horse-

boarding business.

     Between 1992 and 2002, Mr. Rozzano changed jobs at least

twice, as he was hired in 1999 to be the executive vice president

and sales manager for Thorn Apple Valley, Inc., and in 2000, he

was hired to be the senior vice president and general manager of

Plumrose, U.S.A.   During 1999, petitioners resided approximately

5 hours away from Sugar Tree in West Bloomfield, Michigan, while

Mr. Rozzano worked at Thorn Apple Valley, Inc.

     After relocating to Chicago in 1992, petitioners began their

horse-boarding activity.   This activity made use of the 27 stalls

housed in the barn at Sugar Tree, an indoor arena, and the

adjacent fields.   Because petitioners resided more than 350 miles

from Sugar Tree, they employed at least one person to look after

the property and run the day-to-day operations taking place

there.

     Between 1993 and 2003, when Sugar Tree was sold, petitioners

rented a great number of the 27 available stalls for horse-
                               - 4 -

boarding.   Typically, between 40 percent and 65 percent of the

stalls were rented at any given time.   During the taxable years

in issue, petitioners charged in the range of $375 per month for

each horse boarded at Sugar Tree.   In addition to the boarded

horses, petitioners kept their own horse and pony in the stables.

However, the last time that petitioners rode either horse was in

1990.

     Mr. Rozzano applied his extensive business knowledge and

experience to the activity at Sugar Tree.   Using various computer

software programs, he compiled spreadsheets and projected budgets

for the activity.   He also performed most of the major upkeep on

Sugar Tree, including mowing the fields, mending horse fences,

mucking stalls, and also feeding horses on those days that he was

present at Sugar Tree.   According to Mr. Rozzano, during the time

that petitioners lived away from Sugar Tree (which was

approximately 80 percent of the time of 1999 and some small part

of 2000), he would wake up each Saturday morning, drive

approximately 5-plus hours from West Bloomfield, Michigan, to

Sugar Tree (Loveland, Ohio), spend 6 to 8 hours each day of the

weekend mowing, mucking, and mending, and then get back in his

car late Sunday afternoon and drive 5 hours back to West

Bloomfield.   Mr. Rozzano testified that he made this trip every

weekend and holiday until they temporarily moved back to reside

full time at Sugar Tree sometime in 2000.
                                   - 5 -

     Between 1993 and 2000, petitioners reported the following

amounts of income and expenses from their activities at Sugar

Tree on their Schedules C, Profit or Loss From Business:

                         1993           1994      1995         1996

Gross receipts        $61,728   $56,352          $47,952      $92,267
Expenses              116,972   116,859          104,580      128,580
Net profit/(loss)     (55,244) (60,507)          (56,628)     (36,313)

                       1997         1998          1999         2000

Gross receipts        $65,826      $92,267       $53,204      $58,109
Expenses              134,491      161,047       147,894      149,834
Net profit/(loss)     (68,665)     (68,780)      (94,690)     (91,725)

     During the taxable years in issue, petitioners reported

income on their Federal income tax returns as follows:

                                          1999                        2000

Wages, salaries, tips           $221,968.18                 $159,018.45
Taxable interest                     690.94                    1,749.32
Tax-exempt interest                   36.57                       85.22
Ordinary dividends                   984.96                    1,067.51
Taxable refunds                      437.00                    2,490.00
Business income or loss          (94,690.06)                 (91,722.66)
Capital gain or loss              (3,000.00)                  (2,817.05)
Pensions and annuities             ROLLOVER                    ROLLOVER

     Total                      $126,427.59                 $69,870.79

     During the taxable years in issue, petitioners claimed the

following business expenses1 on their Schedules C:

                                 1999                        2000
Advertising                      $105                          $0
Car and truck expenses          3,906                           0
Insurance                       1,865                       2,859
Interest                        2,634                       5,368
Office expenses                 2,787                       1,230


     1
         These figures have been rounded to the nearest dollar.
                                   - 6 -

Repairs and maintenance         4,430                 7,791
Supplies                        3,106                 2,302
Taxes and licenses                 58                    58
Travel                         10,361                 7,307
Meals                           2,337                 1,874
Utilities                      13,249                11,618
Wages                          19,925                19,836
Other expenses:
 Veterinarian              $13,981                  $19,773
 Groundskeeping              6,167                    3,777
 Farrier                     2,010                    1,990
 Hay and feed               38,666                   40,806
 Bedding                     4,303                    5,242
 Total                      65,127                   71,588

Cash expenses before
depreciation                129,890                 131,831

Depreciation                   18,003                18,003

Total expenses              147,893                 149,834

     Substantiation of these figures is not in dispute.

     During 1999 and 2000 petitioners received the following

monthly income from the number of horses boarded as shown below:

                1999                                 2000

 Month         Income    Horses            Month    Income      Horses

January      $3,886.65    12            January     $6,596.00    18
February      4,031.50    11            February     5,650.00    15
March         4,427.42    11            March        4,870.00    13
April         3,375.00     9            April        5,025.00    14
May           2,940.00     9            May          4,447.30    14
June          4,050.03    10            June2        --------    --
July          4,476.00    12            July         5,504.00    15
August        4,105.00    11            August       4,275.00    12
September     4,105.00    11            September    4,575.00    13
October       6,156.60    16            October      4,437.00    13
November      5,585.00    16            November     4,628.00    13
December      5,383.00    15            December     3,260.00     9



     2
         Figures for June 2000 were not included in the record.
                                 - 7 -

     After sustaining yearly losses in the early years of

operations, petitioners were somewhat, but not overly, concerned

with the losses incurred because they thought that they could

“get a handle on the expenses and get them under control.”    But

as time went on, it became evident to petitioners that there were

too many contingencies that were beyond their control which

caused their losses to be greater than they ever expected.

Petitioners attempted to forecast a profit, or at least a break-

even point by utilizing both detailed operating statements and

projected budgets which modified their business plan.   However,

they were unable to reach a break-even point, even after

following their carefully modified business plan.

     Factors contributing to their inability to keep to plan

included a variance in hay costs fluctuating upon the number of

horses, and unpredictable conditions whereby petitioners were

unable to grow an adequate amount of hay on their pastures.    This

resulted in the purchase of additional hay.   Moreover, a leaky

roof in one of the years at issue resulted in a loss of a large

portion of their hay reserves.

      Petitioners provided full care and all of the services

required of the horses boarded at Sugar Tree.   In particular, the

indoor arena provided a benefit to their boarders in the winter,

as the horses could be ridden indoors.
                                 - 8 -

     In 1999, petitioners arrived at the conclusion that their

horse-boarding activity would never be profitable irrespective of

their years of detailed business analyses and budget projections.

Sometime in 2000, petitioners decided to sell Sugar Tree as an

ongoing business.   By doing so, petitioners had to maintain the

property and the boarding activity to show it to prospective

buyers as an ongoing business.    Petitioners began to share their

intent to sell with colleagues in the horse-boarding and breeding

business in the area.   After listing the property in 2001 for

$1,495,000, and placing advertisements in at least one national

horse breeding periodical, petitioners sold the farm in 2003 for

$1,275,000.

      Respondent mailed to petitioners on May 2, 2003, a notice

of deficiency for taxable years 1999 and 2000.   At the time of

the filing of the petition, and pursuant to Rule 171, petitioners

requested that the case be conducted as a small tax case.    Before

the trial, however, petitioners’ attorney requested, pursuant to

Rule 171(c), an order directing that the small case designation

be removed.   Respondent raised no objection to petitioners’

request, and filed an answer on March 28, 2006, the trial date.

Respondent also requested in his answer that the deficiencies for

taxable years 1999 and 2000 be increased to $42,215 and

$35,028.05, respectively.   The increased deficiencies are a

result of respondent’s misapplication of the provisions of
                                - 9 -

section 183 to the excess of loss reported minus income.    In the

notice of deficiency, respondent computed the deficiencies by

recatagorizing the excess losses as deductible unreimbursed

business expenses on petitioners’ Schedules A, Itemized

Deductions.

                               OPINION

     In this case, we are asked to decide whether petitioners’

continuing horse-boarding activity was a bona fide business

activity within the meaning of section 183 near the end of its

operation.    In order to arrive at a decision, our inquiry cannot

separate the taxable years before us from the earlier years of

petitioners’ business operations.   Accordingly, we must consider

not only petitioners’ horse-boarding activities in these taxable

years but also their activities in prior years to construct an

accurate picture of petitioners’ total business activity.

Horse-Boarding Activity

     The parties disagree as to whether petitioners engaged in

their Schedule C activity with an objective of making a profit

within the meaning of section 183 during the taxable years in

issue.3   In addition, petitioners disagree with respondent’s


     3
       When the case was called for trial, the parties offered
into evidence Exhibit 14-J, a document showing that respondent
conducted an examination of petitioners’ 1996 Federal income tax
return and the results of the audit. Respondent objected on the
grounds of a lack of foundation, hearsay, and that petitioners
sought to introduce this evidence for estoppel. The Court
                                                   (continued...)
                             - 10 -

request for an increase in the deficiencies in the event that we

sustain respondent in this matter.

     Section 183(a) disallows deductions attributable to an

activity not engaged in for profit.    Section 183(b) provides two

exceptions to this general rule.   The first, provided by section

183(b)(1), permits deductions that otherwise would be allowable

without regard to whether the activity is engaged in for profit;

the second, provided by section 183(b)(2), permits deductions

that would be allowable only if the activity were engaged in for

profit to the extent that the gross income from the activity

exceeds the deductions allowable pursuant to section 183(b)(1).

Section 183(c) defines an “activity not engaged in for profit” as

“any activity other than one with respect to which deductions are

allowable for the taxable year under section 162 or under

paragraph (1) or (2) of section 212.”    In general, the

Commissioner’s determination set forth in the notice of

deficiency is presumed correct.    Rule 142(a)(1); Welch v.

Helvering, 

, 115 (1933).    In certain circumstances



     3
      (...continued)
overruled respondent’s objection and admitted Exhibit 14-J into
evidence together with the stipulation. The Court instructed
respondent that it would not bar him from maintaining a different
position with respect to the taxable years at issue in the
present case. The Court informed the parties that it would weigh
this piece of evidence in the light of the entire record in the
case. We recognize the implication of this documentation is that
respondent allowed depreciation on assets held for use in
petitioners’ horse-boarding activities in taxable year 1996.
                                - 11 -

the burden of proof shifts to respondent.      Sec. 7491(a)(1); Rule

142(a).    Because the issue in this case is a legal one, we reach

our decision without regard to the burden of proof.      However,

petitioners contend that section 7491(a) and Rule 142(a) are

applicable with respect to the increases in the deficiencies

pleaded in respondent’s answer.    They are correct on this point.

       In deciding whether petitioners’ horse-boarding activity was

engaged in for profit during the taxable years at issue, we must

inquire whether petitioners had an actual and honest objective of

making a profit from the activity.       Dreicer v. Commissioner, 

, 645 (1982), affd. without opinion 

(D.C.

Cir. 1983).    The taxpayers’ expectation need not be a reasonable

one.

Golanty v. Commissioner, 

, 425

(1979), affd. without published opinion 

(9th Cir.

1981); sec. 1.183-2(a), Income Tax Regs.      Whether there is

present an actual and honest objective of making a profit is a

question of fact that is to be resolved upon a consideration of

all relevant circumstances, with the greatest weight being given

to the objective factors rather than the taxpayers’ expression of

their intent.    Dreicer v. Commissioner, supra at 645; Golanty v.

Commissioner, supra at 426; sec. 1.183-2(a) and (b), Income Tax

Regs.

       Section 1.183-2(b), Income Tax Regs., lists these relevant

factors that we now consider:    (1) The manner in which the
                              - 12 -

taxpayers carry on the activity; (2) the expertise of the

taxpayers or their advisers; (3) the time and effort expended by

the taxpayers in carrying on the activity; (4) the expectation

that the assets used in the activity may appreciate in value; (5)

the success of the taxpayers in carrying on similar or dissimilar

activities; (6) the taxpayers’ history of income or loss with

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

(8) the financial status of the taxpayers; and (9) whether

elements of pleasure or recreation are involved.    Golanty v.

Commissioner, supra at 426; sec. 1.183-2(b), Income Tax Regs.

     Based on our consideration of these factors and in the light

of the detailed record in this case, we conclude that

petitioners’ horse-boarding activity was carried on as a business

within the meaning of sections 162 and 183 during the taxable

years at issue.   In reaching this conclusion, we view the

following facts and circumstances as most persuasive:

Manner in Which Taxpayers Carried On the Activity

     Respondent contends that the manner in which petitioners

conducted their horse-boarding activity does not indicate that

the activity was engaged in for profit during the years in issue.

The relevant inquiries before us include whether petitioners

conducted their business in a manner similar to other comparable

businesses, whether petitioners maintained complete and accurate

books and records, and whether changes were attempted to improve
                              - 13 -

profitability.   See Engdahl v. Commissioner, 

, 667-668

(1979); sec. 1.183-2(b)(1), Income Tax Regs.

     As to their manner of conduct, during the taxable years in

issue, petitioners, for the most part, rented more than one-half

of the available stalls in their barn.    Petitioners provided

detailed monthly boarding records for 1999 and 2000, which list

each horse and the expenses incurred.    From the inception of

their activities in 1992, through the years in issue, petitioners

also maintained extensive and separate accountings for all of

their horse-boarding income and expenses using a software program

tailored to small farm operators.    Based on these facts, we are

satisfied that petitioners’ maintenance of complete and accurate

records in this case supports a profit objective.    See Elliott v.

Commissioner, 

, 971-972 (1988), affd. without

published opinion 

(9th Cir. 1990); sec. 1.183-2(b),

Income Tax Regs.

     As to petitioners’ other business practices, although

petitioners made no great effort to advertise their boarding

service to the general public, we do not find their lack of

advertising indicative of an absence of profit motive, as their

word-of-mouth approach in attracting clientele was clearly

successful, as they had, at one point during the years in issue,

80 percent of their stalls rented.
                              - 14 -

     Notably, however, despite the significant stall rental

statistics and petitioners’ thorough accounting methods, we

cannot overlook Mr. Rozzano’s refreshingly candid testimony at

trial that he came to realize sometime in 1999 that petitioners

would neither earn a profit nor reach a break-even point if they

held to their existing boarding fees, nor could they raise

boarding fees or hire additional help in order to become

profitable.   Mr. Rozzano reached this conclusion after he

analyzed all factors necessary to attempt to make the business

more profitable.

     In fact, after his analysis, he calculated that these

measures (i.e., raising boarding fees and hiring additional help)

would likely increase his operating costs taking into account the

scope of the services provided to the boarders.   Moreover, it was

likely that the terms of the contracts then existing with the

boarders meant that any modification to the monthly rental

agreements would have placed petitioners in breach of contract.

Mr. Rozzzano then did what any prudent business person would do,

attempt to lessen expenses until the business including the

property could be sold.

     Petitioners’ rental fees remained unchanged after Mr.

Rozzano decided to sell Sugar Tree (a decision made sometime in

2000).   Notably, petitioners still kept meticulous business

records and used word-of-mouth to advertise their boarding
                              - 15 -

services during the years in which they were continuing the

boarding activities while, at the same time, preparing the

property for sale.

     Mr. Rozzano also testified that it was primarily the cost

associated with hay feed that caused their business to experience

ongoing losses.   We note that for 1999 and 2000, hay and feed

expenses accounted for 34 percent and 32 percent, respectively,

of all cash expenses before depreciation.   To this end,

petitioners devised a strategy to ensure that their hay supply

costs could be mitigated so as to reduce losses and accord with

their budget projections.   Petitioners took steps to ensure that

the hay would remain dry and free from infestation and that their

helper would not waste it unnecessarily.    Petitioners also took

steps in 1999 and 2000 to reduce other operating expenses, such

as travel, meals, and utilities.   These costs did, in fact,

decrease from 1999 to 2000.   Although petitioners did make

efforts to reduce their hay expenses by protecting their supply,

an increase in the number of boarders in 2000, coupled with an

increase in the wholesale price of the feed, resulted in an

increase in hay costs.   While we recognize that efforts to

improve profitability can be indicative of whether petitioners

intended to realize a profit, we do not find their refusal to

raise stall rental prices or hire additional help, especially in

the light of their existing contracts, of their decision to sell
                               - 16 -

Sugar Tree, and of their efforts to reduce hay and other costs,

dispositive on the issue of their profit motive.    It is beyond

this Court’s purview to second-guess petitioners’ business

judgment or the manner of operations of their business.    We

decline to do so.

       In this case, we are presented with taxpayers who admit that

during 1999, they became aware that they could not make a profit

but yet still continued business operations while taking steps to

mitigate their expenses until the business and property could be

sold.    Accordingly, we now address whether petitioners’ admission

at trial should trump the other facts and circumstances of this

case.

       While we cannot disregard Mr. Rozzano’s admission that at

some point in 1999 he realized that his hopes of turning the

boarding activities into a profitable business were unattainable

we do not find that as of that moment, petitioners’ activities

ceased to be a bona fide business within the meaning of section

183.    Moreover, our decision comports with this Court’s holding

in Dreicer, where greater weight must be afforded to the

consideration of all of the facts and circumstances.    In this

case, the facts and circumstances surrounding petitioners’

actions between the time of their realization with respect to

profitability in 1999 and the ultimate disposal of the property
                               - 17 -

in 2003 show that they continued to conduct their horse-boarding

activities in a businesslike manner.

     Even after petitioners’ realization with respect to the

profitability of their horse-boarding activities, their actions

illustrate steps taken to mitigate costs and to try to achieve at

least a break-even point until the business could be sold.

First, petitioners held contracts for stall rentals which they

did not change, nor could they change, for fear of being in

breach.    Second, petitioners made active attempts to reduce hay

and feed costs.    Third, petitioners continued to rent stalls,

maintain their ongoing operations, and even moved back to the

property on a full-time basis in 2000.    Finally, and perhaps most

significantly, the amount of operating costs borne by petitioners

comprised a large share of their wage income in the years at

issue.    Petitioners had wages of $221,968 in 1999, and $159,018

in 2000, and reported net out-of-pocket expenses in those years

from Sugar Tree of $76,687 and $73,722,4 respectfully.   These net

out-of-pocket expenditures were 34 percent and 46 percent of

petitioners’ wages in 1999 and 2000, respectfully.    We cannot

conclude, based on the entirety of the foregoing, that their

activities turned from business into hobby overnight in 1999

based upon Mr. Rozzano’s admission at trial.


     4
       For 1999, gross income of $53,204, less cash expenses
before depreciation of $129,891. For 2000, gross income of
$58,109, less cost of expenses before depreciation of $131,831.
                              - 18 -

Expertise of and Effort Expended by the Taxpayers

     Respondent does not challenge either petitioners’ expertise

or the time and effort expended on the activity at issue.   We

believe that petitioners have established, through credible

testimony, that they not only were well possessed of the

knowledge necessary to operate a horse-boarding business, but

that Mr. Rozzano contributed vast amounts of time to the

operations at Sugar Tree.   First, petitioners were well aware

from their experience as horse owners of the requirements for

boarding horses before they commenced activity at Sugar Tree.

Second, horse-boarding, unlike other horse-related endeavors,

such as breeding and training, while it entails risk, to be sure,

is rather simple in its day-to-day execution; horses are taken

out to pasture (“turned out”), fed, returned to stables to rest,

taken out again, fed again, and retired to their stables.   There

is nothing in the record that suggests that petitioners were not

well versed and extremely competent in these practices.

     Finally, although we suspect that Mr. Rozzano’s testimony

that he spent every weekend and holiday for 10 years performing

upkeep at Sugar Tree may be an overstatement, we find him a

credible and forthright witness overall and moreover, we believe

that he performed most, if not all, of the major upkeep projects

on Sugar Tree himself.   Therefore, we believe that the expertise
                              - 19 -

of and time and effort expended by petitioners support a finding

that the activity was engaged in for profit.

Expectation That Assets Would Appreciate

     Petitioners argue that the increase in the value of Sugar

Tree and the efforts they expended and expenses they incurred in

upkeep of the property support a conclusion that the horse-

boarding activity was engaged in for profit.     We disagree.   On

the issue of whether appreciation of land supports petitioners’

profit intent, the relevant inquiry is whether the holding of the

land for appreciation and the conducting of the horse-boarding

constitute a single activity or separate activities.     Sec. 1.183-

1(d)(1), Income Tax Regs.   Determining whether the two

undertakings are a single activity requires the examination of

all of the facts of the case; the most significant facts being

those that show the degree of organizational and economic

interrelationship of the undertakings.

petitioners primarily purchased the land for

personal enjoyment and not to engage in a business.     Therefore,

they had no bona fide intention, at the time of purchase, to

realize a profit that could offset later operating losses as they

had not yet contemplated any business using the property.       Only

subsequent to the purchase did petitioners use the property in

their horse-boarding activities.
                               - 20 -

     Moreover, we note that the variable costs of petitioners’

horse-boarding activities, including fees, veterinarian care,

etc., exceeded the gross income produced by the activities, with

the result that the horse-boarding activities do not meet the

test imposed under the regulation pertaining whether such

activities will be integrated.   See sec. 1.183-1(d)(1), Income

Tax Regs.   Accordingly, we believe, in this case, that their

holding the property for appreciation and horse-boarding are

separate activities.   See sec. 1.183-2(b)(4), Income Tax Regs.;

Engdahl v. Commissioner, 

(1979);    Allen v.

Commissioner, 

(1979).    Irrespective of this

conclusion, however, we do not believe that petitioners’

inability to argue the appreciation of their land is ultimately

determinate on the issue of whether the horse-boarding activity

was engaged in for profit.

Financial Status of the Taxpayers

     The fact that petitioners have substantial income from

sources other than the activity at issue may indicate that the

activity was not engaged in for profit.   Cf. Engdahl v.

Commissioner, 659, 670.   Respondent argues that Mr. Rozzano’s

income from his job in executive management was sufficient to

absorb the expenses in operating Sugar Tree, indicating that it

was not operated for profit.   We disagree.   As previously stated,

these out-of-pocket expenditures were 34 percent and 46 percent
                              - 21 -

of petitioners’ wages in 1999 and 2000, respectively.   We are not

persuaded that petitioners were able to absorb easily the losses

attributable to the activity at Sugar Tree during these years.

As previously stated, the income reported by petitioners on their

tax returns for the years in controversy does not, in our

opinion, demonstrate that the losses incurred by petitioners were

offset either by petitioners’ income in those years or excessive

depreciation deductions claimed by them.

     Moreover, whatever income petitioners may have had during

the years in issue is secondary to the primary inquiry as to

whether or not petitioners engaged in the activity with a genuine

intent to profit from it.   We note that petitioners had no other

income in the years at issue apart from Mr. Rozzano’s work and a

3-week, holiday job taken by Mrs. Rozzano at The Gap, Inc.     By

1999, both of petitioners’ adult children had left the familial

home, and so, the physical work and personal efforts expended by

petitioners were not being done for the immediate benefit of

their children.   We believe it unlikely, given the distance

petitioners regularly traveled to and from Sugar Tree, the

liability risk inherent to their activity, and the nature and

extent of the physical labor which they performed while at Sugar

Tree, that petitioners would maintain a hobby costing thousands

of dollars and entailing much physical labor.
                              - 22 -

Elements of Pleasure/Recreation

     Respondent argues that not only are Mr. Rozzano’s claims

regarding his involvement with the work done at Sugar Tree

improbable, but that regardless of the amount of effort

petitioners put into the activity, elements of pleasure should

trump any consideration that the activity was a business.     We

disagree.   Until sometime in 2000, petitioners resided at least 5

hours away from Sugar Tree.   This distance required petitioners

to travel between their home and Sugar Tree on weekends and

holidays.   We believe, based on their credible testimony at

trial, that once at Sugar Tree, petitioners did perform a

significant amount, if not all, of the major upkeep on the

property.   Furthermore, petitioners did not ride either of their

horses for pleasure after 1990.    We do not find that the

pleasure that petitioners may have experienced through their

ownership of Sugar Tree should trump a finding that the horse-

boarding activity was operated for profit.   See Jackson v.

Commissioner, 

, 317 (1972).

     Possibly the only elements of pleasure taken by petitioners

were either when watching their own horses frolic in the pasture

or in the mere fact that they could attest to “owning a horse

farm near Lexington, Kentucky.”

     Therefore, on the basis of all of the evidence in the record

of this case, the circumstances of which are unique, we conclude
                             - 23 -

and hold that petitioners conducted their horse-boarding activity

in the years in issue as a bona fide business within the meaning

of section 183.

     Accordingly,


                                          Decision will be entered

                                      for petitioners.