We have no doubt that petitioners devoted extraordinary amounts of time and energy to the farm and that it was hard work, often unenjoyable, for both of them. Nevertheless, hard work alone does not necessarily distinguish a hobby from a for-profit activity. E.g., Smith v. Commissioner, T.C. Memo. 1993-140. Also, as we have said: "a record of substantial losses over many years and the unlikelihood of achieving a profitable operation are important factors bearing on the taxpayer's true intention." Golanty v. Commissioner, 72 T.C. 411">72 T.C. 411, 72 T.C. 411">426 (1979), affd. without published opinion, 647 F.2d 170">647 F.2d 170 (9th Cir. 1981). The losses incurred here were substantial (totaling $ 571,068 for the years for which we have records) and tended to increase over time. From 1979, when the farm's loss was $ 23,666, losses generally increased each year until, in 1990, they were $ 134,384. ⁵ Yes, the farm showed a modest profit in 1991 of $ 20,019. That profit, however, was due to the sale of one horse for $ 175,000; absent that sale, the farm would have suffered a 1991 loss of approximately $ 145,000. Nothing1993 Tax Ct. Memo LEXIS 549">*560 in the record convinces us that petitioners could have continued to make sales that would have turned a yearly farm profit, much less have recouped prior losses. In Bessenyey v. Commissioner, 45 T.C. 261">45 T.C. 261, 45 T.C. 261">274 (1965), affd. 379 F.2d 252">379 F.2d 252 (2d Cir. 1967), we stated:

the presence of losses in the formative years of a business, particularly one involving the breeding of horses, is not inconsistent with an intention to achieve a later profitable level of operation, bearing in mind, however, that the goal must be to realize a profit on the entire operation, which presupposes not only future net earnings but also sufficient net earnings to recoup the losses which have meanwhile been sustained in the intervening years.

1993 Tax Ct. Memo LEXIS 549">*561 The farm's record of losses over the 12 years for which we have data (losses of $ 571,068) is persuasive evidence that the petitioners did not, during the years in question, expect to make a profit from the farm, 72 T.C. 411">Golanty v. Commissioner, supra; sec. 1.183-2(b)(6), Income Tax Regs, and we so find.

Our finding is consistent with other factors that we have considered. Prior to and during the years in issue, petitioners did not operate the farm in a business-like fashion. Although they kept extensive records concerning the care, training, and competitive accomplishments of their horses, they maintained no books and records regarding the operation of the farm, save for canceled checks and receipts that were bound by rubber band according to category. The record contains no indication that petitioners entered into any type of financial planning or engaged in analysis of their books and records with an eye toward increasing the farm's profitability. See sec. 1.183-2(b)(1), Income Tax Regs.

Petitioners also claim that, subsequent to the years in issue, they hired an accountant, instituted a system of computerized record keeping, and generally began1993 Tax Ct. Memo LEXIS 549">*562 to treat the horse farm more as a business. Those factors, however, do not materially impact our section 183 analysis for the years in issue.

Notwithstanding petitioners' protestations regarding the hard work involved with the farm (which we have no reason to disbelieve), we believe that the farm presented significant elements of personal pleasure for both petitioners. We have no doubt that many people keep and ride horses for recreation and compete in horse shows for other than pecuniary reasons. Mrs. Borsody is an accomplished rider, who has won numerous trophies for her riding. She did not deny that her riding and show activities give her pleasure, and we infer that they do. Clearly, her husband takes pride in her accomplishments. We cannot conclude that the virtues of farm life and the show ring do not provide an adequate and sufficient explanation for the hard work and losses undertaken by petitioners. See sec. 1.183-2(b)(9), Income Tax Regs. Also, we note that, for the years for which we have records, Dr. Borsody generally earned substantially more than the losses reported from the farm. In fact, for the years in question, those losses included substantial depreciation1993 Tax Ct. Memo LEXIS 549">*563 ($ 59,946), which is a noncash cost, but which can serve to shelter unrelated, cash income. The existence of a family income independent from farm operations reinforces our conclusion that, although the farm involved hard work, it was not necessarily operated for profit. See sec. 1.183-2(b)(8), Income Tax Regs.

Finally, we address petitioners' argument that, in determining whether the farm was operated for profit, we should take into account the petitioners' expectations that the farm itself would appreciate in value. See sec. 1.183-2(b)(4), Income Tax Regs. Apparently, the farm was removed to its present location, in Gainesville, Virginia, in late 1988 or early 1989, at which time that property (the Gainesville property) was purchased for $ 550,000. Dr. Borsody testified that the Gainesville property had appreciated by several hundred thousand dollars by the time of trial, and was then worth $ 910,000. As evidence thereof, petitioners presented us with an undated document, entitled "Estimated Sellers Settlement Charges", showing a sales price of $ 910,000 for an unspecified piece of property. Being undated and without reference to the Gainesville property, we give that document1993 Tax Ct. Memo LEXIS 549">*564 no weight. Dr. Borsody's testimony is based on what he claims is an appraisal of the Gainesville property. That appraisal is not in evidence and, thus, his testimony is unsupported. We accord it little weight. Also, appreciation of the Gainesville property has no significance for 1987, since it was not then owned by petitioners. A settlement statement supporting Dr. Borsody's testimony as to the purchase price of the Gainesville property ($ 550,000) shows a settlement date of January 24, 1989. We find that to be the case and, thus, see no significance of any appreciation before 1989. Indeed, petitioners have not convinced us that, in 1989, they had any expectation that the Gainesville property would appreciate in value.

For the reasons stated, we find that the farm was not an activity engaged in for profit during the years in question. Accordingly, we hold that petitioners' losses from the farm are allowed only to the extent provided for in section 183.

II. Substantiation of Schedule A Deductions

Respondent disallowed, for lack of adequate substantiation, various Schedule A deductions claimed by petitioners for their 1988 and 1989 taxable years, in the amounts1993 Tax Ct. Memo LEXIS 549">*565 of $ 8,681 and $ 21,516, respectively. Petitioners have introduced no evidence on the Schedule A substantiation issue. Since petitioners have the burden of proof on that score, which they have taken no steps to meet, we sustain respondent's deficiencies with respect to the disallowed Schedule A deductions. Rule 142(a).

III. Additions to Tax

A. Section 6661

Respondent also determined that petitioners are subject to section 6661 additions to tax for substantial understatement of liability for their 1987 and 1988 taxable years. Section 6661(a), for the years in issue, provides that, "If there is a substantial understatement of income tax for any taxable year, there shall be added to the tax an amount equal to 25 percent of the amount of any underpayment attributable to such understatement". Under section 6661(b)(1)(A), there is a substantial understatement where the understatement exceeds the greater of 10 percent of the tax required to be shown on the return or $ 5,000.

Respondent's deficiency determinations, which we have upheld, exceed 10 percent of petitioners' corrected liability, and, unless that liability can be reduced by section 6661(b)(2)(B), petitioners1993 Tax Ct. Memo LEXIS 549">*566 will be subject to the section 6661 additions to tax. Section 6661(b)(2)(B) makes provision for the reduction of an understatement by that portion of the understatement which is attributable to:

(i) the tax treatment of any item by the taxpayer if there is or was substantial authority for such treatment, or

(ii) any item with respect to which the relevant facts affecting the item's tax treatment are adequately disclosed in the return or in a statement attached to the return.

We have already held that petitioners did not conduct their farm activities with a bona fide intention of earning a profit, and no authority has been presented that would support the claimed deductions in the light of the facts of this case. Antonides v. Commissioner, 91 T.C. 686">91 T.C. 686, 91 T.C. 686">702-704 (1988), affd. 893 F.2d 656">893 F.2d 656 (4th Cir. 1990); Crim v. Commissioner, T.C. Memo. 1989-249, affd. without published opinion 899 F.2d 1221">899 F.2d 1221 (6th Cir. 1990). As to adequacy of disclosure, no disclosure statements were attached to petitioners' returns and the information included in the returns was insufficient1993 Tax Ct. Memo LEXIS 549">*567 to disclose the facts on which the deductions turned. Crim v. Commissioner, supra.Thus, any disclosure that was made was not sufficient to reduce the liability pursuant to section 6661(b)(2)(B). See Schirmer v. Commissioner, 89 T.C. 277">89 T.C. 277, 89 T.C. 277">284-285 (1987). Accordingly, we sustain respondent's section 6661 additions to tax against petitioners for their 1987 and 1988 taxable years.

B. Section 6653(a)(1)

Respondent also determined a section 6653(a)(1) addition to tax for negligence against petitioners for their 1988 taxable year. For that year, section 6653(a)(1) imposes an addition to tax equal to 5 percent of the underpayment of the amount required to be shown on a taxpayer's return if any part of that underpayment is due to negligence or disregard of rules or regulations. Negligence is defined as the lack of due care or failure to do what a reasonable and ordinarily prudent person would do under the circumstances. Neely v. Commissioner, 85 T.C. 934">85 T.C. 934, 85 T.C. 934">947 (1985). Petitioners have the burden of proof on that issue. Rule 142(a).

As we explained in Gruse v. Commissioner, T.C. Memo. 1990-187,1993 Tax Ct. Memo LEXIS 549">*568 "When this Court has found that a taxpayer's activity under section 183 was not engaged in for profit, it has also approved respondent's determination, in appropriate cases, that additions to tax for negligence should be imposed." One basis for such a holding is the failure of a taxpayer to maintain adequate records with respect to the challenged activity. See Faulkner v. Commissioner, T.C. Memo. 1985-536 (inadequate records maintained with respect to both a horse breeding operation and a fireplace business); and Sealy v. Commissioner, T.C. Memo. 1980-7 (lack of account books or ledgers in horse farming operation).

Here, petitioners concede that they kept neither account books nor ledgers with respect to the farm. Moreover, as we held in section II of this opinion, petitioners failed to maintain any type of books and records adequate to substantiate their claimed Schedule A deductions for their 1988 taxable year. Accordingly, we sustain respondent's addition to tax for negligence for petitioners' 1988 taxable year.

C. Section 6651(a)(1)

Respondent also determined a section 6651(a)(1) addition to tax against petitioners1993 Tax Ct. Memo LEXIS 549">*569 for their 1988 taxable year. Section 6651(a)(1) provides that, in the case of a failure to file an income tax return by the due date, there shall be imposed an addition to tax for such failure of 5 percent of the amount of tax, reduced by timely payments and credits under section 6651(b)(1), for each month or portion thereof during which the failure continues, not exceeding 25 percent in the aggregate unless such failure is due to reasonable cause and not due to willful neglect.

Petitioners' 1988 tax return was stamped as received by respondent on April 26, 1989, some 9 days after the date it was due. ⁶Section 7502(a) provides that if any return required to be filed on or before a prescribed date is delivered by U.S. mail after that required date, then the date of the U.S. postmark stamped on the cover in which such return is mailed shall be deemed to be the date of delivery. The burden of proving timely mailing rests with the taxpayer. Rule 142(a); Garrett & Garrett, P.C. v. Commissioner, T.C. Memo 1993-453.

1993 Tax Ct. Memo LEXIS 549">*570 On brief, petitioners allege that they properly mailed their 1988 tax return on Monday, April 17, 1989. Nevertheless, the cover in which petitioners' tax return was mailed (presumably bearing the postmark date of such mailing) is absent from the record. Moreover, the postmark date recorded on the return itself by respondent is indecipherable.

When the date of filing cannot be established by a tangible postmark, this Court has considered indirect testimonial evidence of mailing. Mitchell Offset Plate Service, Inc. v. Commissioner, 53 T.C. 235">53 T.C. 235, 53 T.C. 235">239-240 (1969); Garrett & Garrett, P.C. v. Commissioner, supra. Here, however, we are presented with no testimonial or other evidence whatsoever on the issue of timely mailing. Thus, petitioners have failed to meet their burden of proof on that issue, and we sustain respondent's section 6651 addition to tax.

D. Section 6662(a)

Finally, respondent has determined a section 6662(a) penalty against petitioners for their 1989 taxable year. Section 6662(a) provides for the imposition of a penalty on any portion of an underpayment which is attributable to one or more of the1993 Tax Ct. Memo LEXIS 549">*571 following: (1) Negligence or disregard of rules or regulations, (2) any substantial understatement of income tax, (3) any substantial valuation misstatement under chapter one, (4) any substantial overstatement of pension liabilities, or (5) any substantial estate or gift tax valuation understatement.

As in the case of their 1987 and 1988 taxable years, petitioners substantially underreported their tax liability for 1989. Moreover, that understatement is unreduced by any items, the treatment of which is (1) supported by substantial authority, or (2) the subject of adequate disclosure by petitioners. Sec. 6662(d)(2)(B). Accordingly, we sustain respondent's section 6662(a) penalty against petitioners for their 1989 taxable year.

Decision will be entered for respondent.