U.S. Tax Court Holds Horse Breeding Activity Lacked Profit Motive, Rejects Accuracy-Related Penalties

The U.S. Tax Court held that taxpayers’ horse breeding and training activities were not engaged in for profit within the meaning of I.R.C. §183, sustaining the IRS’s disallowance of business expense deductions. Taxpayers, a married couple consisting of a veterinarian and an educator, operated a horse breeding business that had never been profitable since its inception. During the years at issue, they reported substantial farm losses that offset their significant income from other sources, including the husband’s veterinary practice. The IRS examined their returns and determined that their horse activities lacked a profit motive under IRC §183, disallowing their business ...