UNITED STATES TAX COURT

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T.C. Memo. 1998-454

UNITED STATES TAX COURT

ESTATE OF EDWARD BROCKENBROUGH, DECEASED,

SHARON BROCKENBROUGH, AND SUNTRUST BANK, COEXECUTORS,

AND SHARON BROCKENBROUGH, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 22596-95.

Filed December 28, 1998.

Vivian D. Hoard, David D. Aughtry, and Donald P. Lancaster,

for petitioners.

Clinton M. Fried, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

COLVIN, Judge:

Respondent determined deficiencies in

petitioners' 1991 and 1992 Federal income tax and an accuracyrelated penalty as follows:

- 2 Sec. 6662

Penalty

$2,322.20

3,363.60

Deficiency

$11,611

16,818

Year

1991

1992

Petitioners owned an antique store during the years in

issue.

Petitioners also owned a 52-acre farm on which they bred

and trained quarter horses and held three rodeos during the years

in issue.

Respondent concedes that petitioners operated the

rodeos for profit.

In 1992, petitioners discontinued the horse

and rodeo undertakings1 and began to operate a craft fair.

After

concessions, the issues for decision are:

Whether petitioners operated their antique store for

profit in 1991 and 1992.

We hold that they did not.

Whether petitioners operated the horse and rodeo

undertakings as one activity in 1991 and 1992.

We hold that they

did.

Whether petitioners operated their horse and rodeo

activity for profit in 1991 and 1992.

We hold that they did.

Whether petitioners are liable for the accuracy-related

penalty for negligence under section 6662 for 1991 and 1992.

hold that they are to the extent discussed below.

For purposes of sec. 183, two or more "undertakings" may

be one "activity". Sec. 1.183-1(d)(1), Income Tax Regs. We

refer to horse and rodeo "undertakings" because one of the issues

in dispute is whether they were one activity.

- 3 Section references are to the Internal Revenue Code.

Unless

otherwise indicated, Rule references are to the Tax Court Rules

of Practice and Procedure.

FINDINGS OF FACT

Petitioners

Petitioners were married and lived in Gay, Georgia, when

they filed their petition.2

In 1993, the population of Gay was

about 125.

Edward Brockenbrough

Petitioner Edward Brockenbrough (Mr. Brockenbrough) was born

in 1935.

His paternal and maternal grandparents operated

dairies.

His parents were airplane pilots.

They owned about 300

acres of land on which they operated an airport and a farm with

cattle, horses, and pigs.

Mr. Brockenbrough milked cows every

day for 7 years when he was a child.

Mr. Brockenbrough took one

agricultural course and was a member of the Future Farmers of

America when he was in high school.

with a degree in economics.

He graduated from college

He left home after he graduated from

college.

Mr. Brockenbrough began working as a pilot for Delta

Airlines (Delta) when he was 28 years old.

Federal law required

him to retire on August 8, 1995, when he reached the age of 60.

He had worked for Delta 31 years when he retired.

For the 15

Petitioner Edward Brockenbrough died after the trial was

held in this case.

- 4 years before he retired on August 8, 1995, Mr. Brockenbrough flew

international routes to Europe which required him to be away from

home about 12 days a month.

He and his wife vacationed about 1

month each year in Florida, where they had a boat.

Mr. Brockenbrough's wages from Delta were $228,102 in 1991,

$251,822 in 1992, and $47,612 in 1996, the year after he retired.

Mr. Brockenbrough also received a lump sum distribution in 1995

of about $750,000.

Sharon Brockenbrough

Petitioner Sharon Brockenbrough (Mrs. Brockenbrough) was a

flight attendant on Delta's flights to Europe from about 1982 to

the date of trial.

Around the time petitioners started their

antique activity, Mrs. Brockenbrough typically left Atlanta on

Friday nights and returned on Sunday nights.

Petitioners' Farm

Petitioners wanted to live in a farming area near Atlanta,

Georgia, and be able to generate some income after they retired

from Delta.

In 1986, they bought a 52-acre farm with a house on

it in Gay, Georgia, about an hour's drive south of Atlanta.

They

paid for the farm by assuming about a $130,000 balance on the

seller’s mortgage.

Petitioners did not buy the farm to speculate

on land values.

Olde Bank Antiques

There were three or four antique stores in the Gay, Georgia,

area in the mid-1980's.

Mr. Brockenbrough discussed starting an

- 5 antique store with Joe Rollins (Rollins).

Rollins was

petitioners' certified public accountant from 1979 to 1989.

Petitioners spoke with antique dealers in the area,

including Mrs. Gay, about operating an antique business.

Mrs.

Gay had been in the antiques and arts and crafts business in Gay

all of her life and petitioners thought she had been successful.

Petitioners bought a building in the town square from Mrs.

Gay for $7,000 in 1986 or 1987 to house their antique store.

Mr.

Brockenbrough spoke about petitioners' antique store with the

banker who financed the purchase of the building.

The building

adjoined petitioners' farm and was across the street from the

entrance to the Cotton Picking Fair, an arts and crafts fair held

in Gay and attended by about 100,000 people twice a year (see

par. I-D, below).

The building had been a small bank in Gay.

had a teller's cage, an old cannonball safe, a glass window, and

bookshelves.

The building was in disrepair.

Petitioners spent

about $30,000 to buy and renovate the building.

Petitioners

expected the building to increase in value.

Petitioners opened an antique store called Olde Bank

Antiques in the bank building about 1987.

the store.

She likes antiques.

Mrs. Brockenbrough ran

Mrs. Brockenbrough bought some

items on her flights to Europe to sell in her antique store.

Mr.

Brockenbrough helped the business by framing pictures and making

lamps.

- 6 Petitioners relied on friends to operate the antique store

when Mrs. Brockenbrough was away.

Initially, Ray Hawkins

(Hawkins) operated the store when Mrs. Brockenbrough was away.

Petitioners did not pay Hawkins.

Later, petitioners hired

Hawkins' wife to help run the business and to be a part-time

bookkeeper.

Before the years in issue, petitioners advertised their

antique shop in the Meriwether Indicator, the only newspaper in

the county at the time.

Petitioners' antique business did not do well.

An antique

center opened in Warm Springs, Georgia, south of Gay, drawing

customers away.

In February 1990, Gay's mayor and four city council members

decided that Gay needed a city hall.

Mr. Brockenbrough offered

to sell them the old bank building.

Petitioners had the building

appraised and submitted the result to the city council.

The city

council did not buy the building.

By 1990 or 1991,3 petitioners knew that they could not make

a profit from their antique store.

They kept it open part time

(3 to 5 days a week) until they could sell their merchandise.

They also left a sign in the window with their telephone number

and a message that if anyone saw anything that they liked in the

window to call petitioners at home, which was about 100 yards

The years in issue in this case are 1991 and 1992.

- 7 away.

In 1992, petitioners held an auction at which they sold

all of their inventory.

At trial, petitioners did not know how

many antiques they had sold in 1991 and 1992 or what their

inventory was during those years.

Beginning in 1992, petitioners used the building as an

office for their fair (see par. I-D, below) and a place to keep

their books.

Petitioners sold the building in 1995 for $35,000.

Olde Bank Antiques had a separate checking account in 1991

and 1992.

Olde Bank Antiques never earned a profit.

On their

1991 return, petitioners reported gross receipts for Olde Bank

Antiques of $1,885, cost of goods sold of $1,802, and expenses of

$11,035.

They did not deduct any wage or advertising expenses

for Olde Bank Antiques.

On their 1992 return, petitioners

reported gross receipts for Olde Bank Antiques of $2,589, cost of

goods sold of $4,743, and expenses of $7,496.

Blue Horse Farms

Petitioners' Horse Breeding and Training

Plans and Preparation

Mr. Brockenbrough decided to breed, raise, and train quarter

horses at petitioners' farm in Gay.

He had no experience in the

business of breeding, raising, or training horses.

Before he

bought any horses, Mr. Brockenbrough investigated the horse

breeding and training business with Earl Bumgarner (Bumgarner),

Bob Roland (Roland), Tommy Cashion (Cashion), Chuck Cole (Cole),

and Max Chase, all of whom were active in the horse business.

- 8 Bumgarner was a professional horse trainer who trained quarter

horses, produced rodeos, and was on the Georgia Rodeo Board.

was also a chaplain for the Rodeo Cowboys Association of America.

Roland was a quarter horse specialist.

Cashion was familiar with

the quarter horse, cattle, and rodeo businesses.

horses in rodeos.

He rode quarter

At the time of trial, Cashion managed a

business of raising quarter horses and cattle.

Mr. Brockenbrough thought petitioners could make a profit by

selling quarter horses because quarter horses are preferred by

rodeo riders and barrel racers, and they work well with cattle.

However, he believed that it would be several years before

petitioners could make a profit from quarter horses because of

the time required to breed and train horses.

In 1991, David Jordan (Jordan), a certified public

accountant, told petitioners how to keep books and records that

they would need to make business decisions and that he would need

to prepare their income tax returns.

Jordan developed a

recordkeeping system for petitioners based on their checking

account.

Petitioners kept detailed financial records as

requested by their accountant.

account for their farm activity.

They had a separate checking

Blue Horse Farms.

Petitioners called their farm

Petitioners gave all of the records relating

to Blue Horse Farms to their accountant and relied on him to

prepare their returns properly.

- 9 In 1991, Mr. Brockenbrough built a barn with stalls for

$102,065 and a horse arena with lighting.

Initial Stock

Petitioners bought 15 horses in 1991.

Petitioners bought

six quarter horses (five mares and one stud named Sam Skyles)

from Bobby Denton (Denton) in Colorado in February 1991.

veterinarian checked the horses before Denton released them to

petitioners.

Petitioners bred many of these mares to Sam Skyles.

They also bought a mare in February 1991 from Cole.

In August 1991, petitioners bought six quarter horses

(mares) from Denton.

Denton had bred those mares to Invaders

Zorro, a stallion which was a paint horse (a type of quarter

horse), before selling them to petitioners.

those mares was not in foal.

Despite this, one of

Another mare died foaling her colt.

Three mares contracted a virus from fescue grass not found in

Colorado which caused them to abort.

In October 1991, petitioners bought two riding horses to

train.

Petitioners joined the American Quarter Horse Association

and registered their quarter horses with it.

Petitioners

reported Sam Skyles' breeding activity in the American Quarter

Horse Association Stallion Breeding Report.

Petitioner also bought 16 cattle in 1991 to use to train

their quarter horses.

- 10 c.

Hiring Bumgarner

Petitioners hired Bumgarner to manage Blue Horse Farms.

Bumgarner fed the animals, helped keep the barn clean, trained

the foals, showed the horses, and supervised the arena and

weekend roping events.

Petitioners paid Bumgarner about $400 per

week plus a percentage of their income from the horses.

Paying a

manager that amount of salary plus a percentage of income was

customary for a farm like petitioners'.

Operations

Petitioners began to operate their horse activity in 1991.

Petitioners reported having six employees for the farm in 1991.

Petitioners' employees provided services including training,

boarding, shoeing horses, and giving riding lessons.

obtained insurance for their horse activity.

Petitioners

expected that their animals would breed and increase in number.

Petitioners expected to train the foals to increase their value,

and then to sell them.

John Brockenbrough, Mr. Brockenbrough's son, worked at Blue

Horse Farms after he graduated from college.

He overfed a mare

which caused her death.

Mr. Brockenbrough was not a horse trainer, but he did a lot

of the dirty work relating to the horses, such as putting up hay

and cleaning the stalls.

supplements.

He gave the animals shots and vitamin

He did not ride horses in 1991 and 1992.

Mr.

Brockenbrough told Bumgarner not to contact him while he was on

- 11 international flights.

Mrs. Brockenbrough does not like to ride

horses.

Petitioners advertised their horse business on the radio and

in magazines such as Horse Lovers, Stable Mates, and The Quarter

Horse Association.

The Rodeos

Mr. Brockenbrough wanted to publicize his horses and

generate revenue for Blue Horse Farms to offset losses he

expected initially.

quarter horses.

Conducting rodeos can complement breeding

Quarter horses are used extensively in rodeos

for calf roping, steer wrestling, team pinning, team roping, and

barrel racing.

Before deciding to hold rodeos at Blue Horse Farms, Mr.

Brockenbrough discussed the rodeo business and how to produce a

rodeo at his farm with members of a southeastern regional rodeo

association, bankers, and accountants.

He attended many rodeos,

but he did not review financial data of those rodeos.

Petitioners held a total of three rodeos in 1991 and 1992.

Petitioners used the advertising and programs for the rodeos to

advertise their horse operations.

Petitioners contracted with Charley Lowrey of 4 L Rodeo

Productions (4 L), Summerville, Georgia, to produce their first

rodeo, which was held on October 5 and 6, 1991.

Petitioners

provided all the advertising, advertising books, bleachers,

- 12 spectator insurance, a forklift to load and unload bucking

chutes, lighting, water for livestock, sewage and water,

electricity, tickets and people to handle tickets, restrooms,

spectator seating, concession stands, a tractor and disk to work

the arena, and an ambulance.

4 L provided animals and personnel

for the events.

Petitioners hired Cotton Young (Young) to produce their

second rodeo, which was held on May 1 and 2, 1992.

paid Young about $16,000.

Petitioners

Petitioners' responsibilities were

essentially the same as for the first rodeo.

Mr. Brockenbrough and Bumgarner produced petitioners’ third

rodeo, which was held in the fall of 1992.

They produced the

rodeo themselves in an attempt to minimize expenses and generate

a profit.

They used their horses and cattle and rented a few

steers for that rodeo.

Cashion saw petitioners' stud, Sam Skyles, while he attended

one of petitioners' rodeos.

He decided to breed Sam Skyles to

one of his mares.

Petitioners used the same accountant and checking account

for their rodeo and horse undertakings.

Bumgarner's Dismissal

By the time they held the third rodeo, petitioners concluded

that Bumgarner had been using petitioners' facilities, feed, and

stud horses without paying petitioners, selling cattle without

giving petitioners the proceeds, and using two of his uninsured

- 13 friends as riders during the third rodeo against petitioners'

orders.

Petitioners discharged Bumgarner shortly after the third

rodeo.

Cessation of the Horse and Rodeo Undertakings

Petitioners could not find anyone to replace Bumgarner, and

they were losing money on their horses and rodeos.

to discontinue these undertakings.

They decided

They sold their animals for

$8,413.20.

Great Gay, Georgia, Marketplace

Petitioners began looking for a new profit-making activity

immediately after they realized that they could not make a profit

from their rodeos and horses.

The Cotton Picking Fair, an arts and craft fair, was held in

Gay twice each year, including 1991 and 1992.

the road from petitioners' farm.

been held for about 20 years.

It was held across

The Cotton Picking Fair had

It had about 250 exhibitors, each

of whom had to be accepted by a panel of experts.

In 1991 and 1992, some vendors who could not participate in

the Cotton Picking Fair asked petitioners if they could rent

space for booths on petitioners' land from which to sell goods

during the fair.

A neighbor who had rented space to vendors

during the fair helped petitioners do the same.

Brockenbrough negotiated with the vendors.

Mrs.

Petitioners charged

up to $100 to rent 10' x 10' spaces to vendors on September 29

and October 4, 1992.

Mrs. Brockenbrough rented space to about 50

- 14 vendors.

Because of their success in the fall of 1992,

petitioners decided to hold their own fair, called the Great Gay,

Georgia, Marketplace, twice a year, when the Cotton Picking Fair

is held.

Petitioners' Tax Returns

Petitioners reported the following gross receipts, losses,

and depreciation for 1991 and 1992:

Year

Gross

receipts

Losses (including

depreciation)

1991

1992

$1,885

2,589

Antiques

($10,952)

(9,830)

$2,594

2,443

1991

1992

3,947

21,589

Horses and Rodeos

(40,746)

(44,600)

4,426

8,146

Depreciation

Petitioners reported their horse and rodeo undertakings on

the same schedule in 1991 and 1992.

Petitioners had gross

receipts from their fair in 1992 of about $3,020 with no expenses

or depreciation.

II.

OPINION

Respondent concedes that petitioners operated the rodeos for

profit.

We must decide whether petitioners operated their

antique store for profit in 1991 and 1992.

We must also decide

whether petitioners' horse and rodeo undertakings were one

activity, and if so, whether they operated that activity for

profit in 1991 and 1992.

Finally, we must decide whether

petitioners are liable for the accuracy-related penalty for

- 15 negligence under section 6662 for 1991 and 1992.

The burden of

proof on all issues in dispute in this case is on petitioner.

Welch v. Helvering, 290 U.S. 111, 115 (1933).

Whether Petitioners Operated Olde Bank Antiques for Profit

in 1991 and 1992

Petitioners contend that they operated Olde Bank Antiques

for profit in 1991 and 1992.

An activity is conducted for profit

if it is conducted with an actual and honest profit objective.

Osteen v. Commissioner, 62 F.3d 356, 358 (11th Cir. 1995), affg.

in part and revg. on 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 the

antique shop and farm for profit, we apply the nine factors

listed in section 1.183-2(b), Income Tax Regs.

are:

The nine factors

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

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

advisors; (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

- 16 involved.

No single factor controls.

Sec. 1.183-2(b), Income

Tax Regs.

The burden of proof is on petitioners.

Welch v.

Helvering, 290 U.S. 111, 115 (1933).

Petitioners offered very little to support their contention

that they operated their antique store for profit in 1991 and

1992 or any other year.

Mrs. Brockenbrough operated the store,

but did not testify, although she was present at trial.

We infer

that petitioners have no stronger evidence available to support

their position about the store.

Wichita Terminal Elevator Co. v.

Commissioner, 6 T.C. 1158 (1946), affd. 162 F.2d 513 (10th Cir.

1947).

Manner in Which the Activity is Conducted

Conducting an activity in a manner substantially similar to

comparable businesses which are profitable may indicate that a

taxpayer conducted the activity for profit.

Engdahl v.

Commissioner, 72 T.C. 659, 666-667 (1979).

Petitioners offered little evidence about the business

activity of the store.

There is no evidence that petitioners had

any business plan for the activity.

advertise in 1991 or 1992.

Petitioners did not

At trial, Mr. Brockenbrough did not

know what items petitioners sold or had in inventory during the

years in issue, and he admitted that he knew in 1991 that their

antique business could never be profitable.

In the years in

issue, petitioners opened the store only part time and they left

- 17 a sign in the window for people to call them if they wanted to

see something in the store.

This factor favors respondent.

The Expertise of the Taxpayers or Their Advisors

Preparation for an activity by extensive study of its

accepted business, economic, and scientific practices, and

consultation with experts in the business, may indicate that the

taxpayer entered into the activity for profit.

Sec. 1.183-

2(b)(2), Income Tax Regs.

Petitioners had no experience

operating a retail store.

Petitioners spoke to a couple of

people about operating an antique store, but, the record contains

little detail about the substance of those conversations, and

there is no evidence that petitioners sought any advice about how

to correct the store's losses in the years in issue.

See Engdahl

v. Commissioner, supra at 668 (continuous consultation with

experts showed profit motive).

This factor favors respondent.

Taxpayer's Time and Effort

The fact that a taxpayer devotes much time and effort to

conducting an activity may indicate that the taxpayer has a

profit objective.

Sec. 1.183-2(b)(3), Income Tax Regs.

There is

virtually no evidence about how Mrs. Brockenbrough spent her time

at the store.

Petitioners did not operate the store on a full-

time basis after 1990.

This factor favors respondent.

- 18 4.

Expectation That the Property Used in the Activity

Would Appreciate in Value

The fact that a taxpayer expects assets used in an activity

to appreciate in value may indicate that the taxpayer has a

profit objective.

Sec. 1.183-2(b)(4), Income Tax Regs.

The term

"profit" includes appreciation in the value of assets used in the

Petitioners expected the building to appreciate

activity.

Id.

in value.

This factor favors petitioners.

Taxpayer's Success in Other Activities

The fact that a taxpayer has previously engaged in similar

business activities and converted them from unprofitable to

profitable may show that the taxpayer has a profit objective,

even though the activity is presently unprofitable.

2(b)(5), Income Tax Regs.

Petitioners had not previously engaged

in similar business activities.

Sec. 183-

This factor favors respondent.

Taxpayer's History of Income or Losses

A history of substantial losses may indicate that a taxpayer

did not conduct an activity for profit.

Golanty v. Commissioner,

72 T.C. 411 (1979), affd. without published opinion 647 F.2d 170

(9th Cir., 1981); sec. 1.183-2(b)(6), Income Tax Regs.

However,

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

a history of losses.

Bessenyey v. Commissioner, 45 T.C. 261, 274

(1965), affd. 379 F.2d 252 (2d Cir. 1967).

A series of losses

- 19 during the initial stage of an activity does not necessarily

indicate that the activity was not conducted for profit.

Engdahl

v. Commissioner, supra at 669; sec. 1.183-2(b)(6), Income Tax

Regs.

The antique store was not profitable during any of the 4

years it was open.

Petitioners did little or nothing to sell the

building and inventory during the 2 years after they knew the

business could not be profitable.

They liquidated their

inventory at an auction in 1992.

They did not explain why they

waited that long or show that their inventory was difficult to

liquidate.

During the period of delay, petitioners continued to

depreciate the building and incur expenses for mortgage,

interest, repairs, maintenance, and utilities for the building.

For 1991, they reported gross receipts of $1,885, cost of goods

sold of $1,802, and expenses of $11,035.

For 1992, they reported

gross receipts of $2,589, cost of goods sold of $4,743, and

expenses of $7,496.

This factor favors respondent.

Amount of Occasional Profits, if Any

Small occasional profits with large continuous losses do not

establish that the taxpayer had a profit objective.

2(b)(7), Income Tax Regs.

Sec. 1.183-

This factor generally applies to

- 20 losses that persist over a long period of time and which are not

due to unforeseen circumstances.

See Phillips v. Commissioner,

T.C. Memo. 1997-128; Briggs v. Commissioner, T.C. Memo. 1994-125;

Leonard v. Commissioner, T.C. Memo. 1993-472.

never made a profit.

The antique store

This factor favors respondent.

Financial Status of the Taxpayer

Substantial income from sources other than the activity,

causing the losses to generate large tax benefits, may indicate

that the taxpayer is not conducting the activity for profit.

Sec. 1.183-2(b)(8), Income Tax Regs.

Petitioners' losses

sheltered a large amount of their income in 1991 and 1992.

This

factor favors respondent.

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.

Tax Regs.

Sec. 1.183-2(b)(9), Income

However, a taxpayer's enjoyment of an activity does

not show that the taxpayer lacks a profit objective if the

activity is conducted for profit as shown by other factors.

Jackson v. Commissioner, 59 T.C. 312, 317 (1972); sec. 1.1832(b)(9), Income Tax Regs.

Mrs. Brockenbrough likes antiques, and

the record contains little to show she had a profit objective.

- 21 This factor favors respondent.

10.

Petitioners' Other Contention

Petitioners point out that petitioners were audited for

1988, and that respondent's agents who conducted that audit did

not tell petitioners that they thought petitioners lacked a

profit motive for their antique activity.

Petitioners contend

that this shows that they had a profit motive for their antique

activity in 1991 and 1992.

We disagree.

The Commissioner's

failure to raise an issue in a prior audit does not estop the

Commissioner from raising it in an audit for a later year.

See

Knights of Columbus Council No. 3660 v. United States, 783 F.2d

69, 73 (7th Cir. 1986); Hawkins v. Commissioner, 713 F.2d 347,

351-352 (8th Cir. 1983), affg. T.C. Memo. 1982-451.

11.

Conclusion

We conclude that petitioners did not conduct their antique

activity for profit in 1991 and 1992.

Whether Petitioners' Horse and Rodeo Undertakings Were One

Activity

Respondent contends that petitioners' horse and rodeo

undertakings were two activities.

The applicable regulations state that, generally, the most

important factors are the degree of organizational and economic

interrelationship of the undertakings, the business purpose

- 22 served by carrying on the undertakings separately or together,

and the similarity of the undertakings.

Income Tax Regs.4

Sec. 1.183-1(d)(1),

The Commissioner generally accepts a

taxpayer's characterization of two or more undertakings as one

activity unless it is artificial or unreasonable.

Id.

Sec. 1.183-1(d)(1), Income Tax Regs., provides in part:

(d) Activity defined--(1) Ascertainment of

activity. In order to determine whether, and to what

extent, section 183 and the regulations thereunder

apply, the activity or activities of the taxpayer must

be ascertained. For instance, where the taxpayer is

engaged in several undertakings, each of these may be a

separate activity, or several undertakings may

constitute one activity. In ascertaining the activity

or activities of the taxpayer, all the facts and

circumstances of the case must be taken into account.

Generally, the most significant facts and circumstances

in making this determination are the degree of

organizational and economic interrelationship of

various undertakings, the business purpose which is (or

might be) served by carrying on the various

undertakings separately or together in a trade or

business or in an investment setting, and the

similarity of various undertakings. Generally, the

Commissioner will accept the characterization by the

taxpayer of several undertakings either as a single

activity or as separate activities. The taxpayer's

characterization will not be accepted, however, when it

appears that his characterization is artificial and

cannot be reasonably supported under the facts and

circumstances of the case. If the taxpayer engages in

two or more separate activities, deductions and income

from each separate activity are not aggregated either

in determining whether a particular activity is engaged

in for profit or in applying section 183. * * *

- 23 We have applied various factors in deciding whether a

taxpayer's characterization of several undertakings as one

activity is unreasonable for purposes of section 183, such as:

(a) Whether the undertakings share a close organizational and

economic relationship, (b) whether the undertakings are conducted

at the same place, (c) whether the undertakings were part of a

taxpayer's efforts to find sources of revenue from his or her

land, (d) whether the undertakings were formed as separate

businesses, (e) whether one undertaking benefited from the other,

(f) whether the taxpayer used one undertaking to advertise the

other, (g) the degree to which the undertakings shared

management, (h) the degree to which one caretaker oversaw the

assets of both undertakings, (i) whether the taxpayers used the

same accountant for the undertakings, and (j) the degree to which

the undertakings shared books and records.

Keanini v.

Commissioner, 94 T.C. 41, 46 (1990); Hoyle v. Commissioner, T.C.

Memo. 1994-592; De Mendoza v. Commissioner, T.C. Memo. 1994-314;

Scheidt v. Commissioner, T.C. Memo. 1992-9; Trafficante v.

Commissioner, T.C. Memo. 1990-353; Schlafer v. Commissioner, T.C.

Memo. 1990-66.

Applying these factors, we conclude that the undertakings at

issue were one activity.

The rodeo and horse undertakings had a

- 24 close organizational and economic relationship.

undertakings are complementary.

Rodeo and horse

The undertakings were both

conducted at petitioners' farm and were both attempts to make the

farm profitable.

Mr. Brockenbrough and Bumgarner managed the

rodeo and horse undertakings and their assets.

Petitioners held

rodeos in part to boost their horse business.

Petitioners used

some of their horses and cattle, the barn, and arena for both the

farm and rodeos.

Petitioners used the rodeos to advertise and

sell their quarter horses.

Petitioners used the same accountant

for the horse and rodeo undertakings.

Petitioners used the same

checking account for their rodeo and horse undertakings and

reported both undertakings on one schedule for each year in

issue.

In Hoyle v. Commissioner, supra, the taxpayer bought a farm

and then grew raspberries, soybeans, corn, and grain; guided

hunting; boarded horses; raised horses and cattle; bred game

birds; crabbed; raced thoroughbred horses; and participated in

agricultural set-asides.

According to Hoyle, those undertakings

were one activity for purposes of section 183.

This case is like

Hoyle v. Commissioner, supra, in that petitioners were trying to

find sources of revenue from their farm.