                         T.C. Memo. 1998-349



                       UNITED STATES TAX COURT



      COURTNEY C. HAUN AND REBECCA F. HAUN, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 2930-97.               Filed October 1, 1998.



     R. Cody Mayo, Jr., for petitioners.

     Emile L. Hebert III and Linda J. Bourquin, for respondent.




             MEMORANDUM FINDINGS OF FACT AND OPINION

     CHIECHI, Judge:    Respondent determined deficiencies in

petitioners' Federal income tax for taxable years 1992 and 1993

in the amounts of $6,233 and $10,353, respectively.

     We must decide whether petitioners engaged in their horse

activity during 1992 and 1993 with the objective of making a
                                - 2 -

profit within the meaning of section 183.1     We hold that they

did not.

                           FINDINGS OF FACT

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

     Petitioners resided in Haughton, Louisiana, at the time they

filed the petition.

     During the years 1991 through 1996, each petitioner was

employed full time by BellSouth.    Petitioner Courtney C. Haun

(Mr. Haun) has worked since 1971 as a telephone service techni-

cian repairing telephone lines and installing new telephone

services.

     In March 1991, petitioners purchased approximately 15 acres

of real property in Haughton, Louisiana (Haughton property),

although they did not reside on that property until about a year

after they purchased it.

     Prior to moving to the Haughton property, petitioners

resided in a trailer house on about two acres of land on which

there were a small barn and a pipe lot for the couple of horses

that they owned and that Mr. Haun used for, inter alia, roping.

     Mr. Haun, a farrier who was trained in blacksmithing around

the early 1990's, has been involved with horses since he was

around nine years old and has competed with them since he was in


     1
        All section references are to the Internal Revenue Code
in effect for the years at issue. All Rule references are to the
Tax Court Rules of Practice and Procedure.
                                 - 3 -

junior high school.   Throughout his life, Mr. Haun has enjoyed

using horses for, inter alia, roping, including team roping,

trail riding, and hog hunting and has participated in various

recreational activities involving roping horses, including

attending roping horse shows, races, and competitions.      Mr.

Haun's participation in those recreational activities was reduced

somewhat after petitioners started training and selling roping

horses (roping horse activity) on the Haughton property some time

during 1991.

     Before petitioners started the roping horse activity in

1991, Mr. Haun consulted with Robert Cook, a lawyer, who advised

him to incorporate that activity because of liability concerns.

That lawyer referred petitioner to Charles D. Churchill, a

certified public accountant, who prepared petitioners' return for

1991.

     Sometime prior to the years at issue, Mr. Haun also con-

sulted with Robert Rich, Jr., a professional horse trainer, about

the demand for and the difficulty of finding good horses and with

another professional horse trainer, Ben Lolly (Mr. Lolly), about

the amounts for which horses with which Mr. Lolly was familiar

were bought and sold.   Mr. Lolly told Mr. Haun about certain team

roping sales that had just started and about the United States

Team Roping Championships (USTRC).       Two people are needed in team

roping, a header and a heeler.    The header ropes the horns of the

cattle, and the heeler ropes its back feet.      As of the time of
                                - 4 -

the trial in March 1998, the USTRC, which was formed around 1990,

was the largest recreational team roping organization in the

United States, had a classification system that spanned profes-

sionals to novices, thereby allowing all ropers to compete at

various ability levels, and kept track of the handicap classifi-

cations of more than 80,000 ropers in the United States and

Canada.    As of March 1998, the USTRC produced and sanctioned more

than 90 team ropings annually throughout the United States as

well as the USTRC National Finals of Team Roping, which was the

largest and richest team roping event in the world.

        Team ropers usually buy their roping horses fully trained.

Typically, training a horse as a roping horse cannot start until

the horse is about six years old.   Generally, a properly trained

and mature head roping horse can be sold for more than a properly

trained and mature heel roping horse.   Typically, team roping

horses are sold (1) by word of mouth at roping horse competi-

tions, such as the USTRC competitions, and (2) at team roping

sales that are held in, inter alia, Clovis, New Mexico.   In a

brochure prepared for the Clovis Livestock Auction in connection

with its 1995 annual spring consignment, which featured its third

annual team roping sale in mid-March of that year, Mr. Haun was

listed as a consignor for two horses that he transported to that

sale.

     During relevant periods, petitioner Rebecca F. Haun (Ms.

Haun) has from time to time, but not often, helped in the roping
                               - 5 -

horse activity.   It was Mr. Haun who during relevant periods

performed virtually all of the tasks relating to the roping horse

activity.   During the years at issue, he was able to, and did,

spend time in that activity only on the weekends and before and

after his full-time work at BellSouth during the week.   Part of

the time on the weekends that Mr. Haun spent during the years at

issue in the roping horse activity was recreational.

     In July 1991, petitioners began construction on the Haughton

property of an arena for training roping horses (roping arena).

That arena was completed in September 1991 and has been used by

Mr. Haun since that time for training roping horses.   Since it

was constructed in 1991 through to the date of the trial in this

case, the roping arena did not have any bleachers or lights and

was not suitable for staging events for either roping horse

competitions or roping horse practice sessions.   At no time prior

to, during, or after the years at issue to the trial date herein

did petitioners hire anyone to assist them in the roping horse

activity.   Petitioners could have held roping horse competitions

in the roping arena since it was completed in September 1991 for

which entry fees could have been charged if they had added

lights, leased or purchased cattle, and hired some help.   They

also could have held roping horse practice sessions in the roping

arena since that time for which entry fees could have been

charged without hiring anyone if they had added lights and leased

or purchased cattle.   Although at some time not disclosed by the
                              - 6 -

record petitioners had purchased lights and made arrangements to

purchase cattle, both of which were needed to hold roping horse

competitions and practice sessions, as of the trial date in this

case those lights had not been installed in the roping arena,

petitioners had not purchased those cattle, and petitioners had

not held any roping horse competitions or practice sessions in

the roping arena.

     In addition to constructing the roping arena in 1991, Mr.

Haun's involvement in the roping horse activity during relevant

periods included constructing a barn with four stalls, a horse

walker, paddocks, and a pipe fence.   Since 1991, Mr. Haun has

regularly cleaned the horse stalls, fed, watered, blanketed,

shoed, wormed, and performed other uncomplicated veterinary

procedures for the horses (e.g., vaccinating them), trained them

to be roping horses, which takes about two years, rode the roping

horses in competitions, and used a tractor in the roping arena.

     Prior to 1993, petitioners formed Rafter H, Inc. (Rafter H)

and have been its sole shareholders since that time.   On January

1, 1995, petitioners transferred all the interests that they had

in the roping horse activity, including the horses that they

owned, to their wholly owned corporation Rafter H in exchange for

additional voting common stock in that corporation, but they did

not transfer any of their interests in the Haughton property to

Rafter H.
                               - 7 -

     Thereafter, around September 1995, Mr. Haun and Ms. Haun

separated.   Since their separation, Mr. Haun has been precluded

by a court order relating to that separation from selling any

community property that he owned with Ms. Haun.   As of the time

of the trial in this case, Mr. Haun and Ms. Haun were still

separated, but they were not divorced.

     During 1992, petitioners had at least two horses; during

1993, they had approximately four horses; during 1994, they had

between four and six horses; and as of the time of trial herein,

they had five or six horses.

     Petitioners electronically filed their U.S. individual

income tax return (return) for each of the years 1991, 1992, and

1993.   Petitioners reported the income, expenses, and loss from

the roping horse activity for each of those years in Schedule C

of their return for each such year.    Petitioners filed a return

for 1994 and reported the income, expenses, and loss from the

roping horse activity for that year in Schedule F of their 1994

return.

     Rafter H filed a U.S. Corporation Income Tax Return (Form

1120) for 1994 and a U.S. Income Tax Return for an S Corporation

(Form 1120S) for each of the years 1995 and 1996.   The income,

expenses, and loss for the roping horse activity for each of the

years 1995 and 1996 were reported in the return filed by Rafter H

for each of those years.   The respective losses of Rafter H from

the roping horse activity for 1995 and 1996 were reported as S
                                 - 8 -

corporation losses in Schedules E of petitioners' 1995 and 1996

returns.

     Petitioners reported the following amounts of wage income in

their returns for 1991 through 1996:

                  Year           Wage Income
                  1991             $71,659
                  1992              72,345
                  1993              84,565
                  1994              84,167
                  1995              99,366
                  1996             107,030
                         Total     519,132

     The following income, expenses, and losses from the roping

horse activity were reported in petitioners' returns for the

years 1991 through 1994 and in Rafter H's returns for the years

1995 and 1996:

   Year              Income      Expenses       Losses
   1991                -0-        $19,915      $19,915
   1992                $600        35,108       34,508
   1993               1,000        45,344       44,344
   1994                -0-         29,712       29,712
   1995                 901        26,949       26,048
   1996                -0-         24,705       24,705
         Totals       2,501       181,733      179,232


     Respondent determined in the notice of deficiency (notice)

that petitioners are not entitled to the expenses with respect to

the roping horse activity in the amounts of $35,108 and $45,344

that they claimed in Schedules C of their 1992 and 1993 returns,

respectively.2

     2
        The parties stipulated that if the Court were to
determine that petitioners engaged in the roping horse activity
                                                   (continued...)
                                 - 9 -

                                OPINION

     Petitioners bear the burden of proving that respondent's

determinations in the notice are erroneous.   Rule 142(a); Welch

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

     Section 183(a) generally limits the amount of expenses that

a taxpayer may deduct with respect to an activity "not engaged in

for profit" to the deductions provided in section 183(b).

Section 183(b)(1) provides that deductions which would be allow-

able without regard to whether such activity is engaged in for

profit are to be allowed.   Section 183(b)(2) further provides

that deductions which would be allowable only if such activity

were engaged in for profit are to be allowed, but only to the

extent that the gross income derived from such activity for the

taxable year exceeds the deductions allowable under section

183(b)(1).   An activity is "not engaged in for profit" if it is

an activity other than one with respect to which deductions are

allowable for the taxable year under section 162 or section

212(1) or (2).   Sec. 183(c).

     In determining whether an activity is engaged in for profit,

the taxpayer must show that he or she engaged in the activity

with an actual and honest objective of making a profit.   E.g.,


     2
      (...continued)
during 1992 and 1993 with the objective of making a profit within
the meaning of sec. 183, they would be entitled for those years
to losses from that activity in the respective amounts of $26,487
and $41,486.
                                - 10 -

Hulter v. Commissioner, 91 T.C. 371, 392 (1988); Dreicer v.

Commissioner, 78 T.C. 642, 645 (1982), affd. without opinion 702

F.2d 1205 (D.C. Cir. 1983).    Although the taxpayer's expectation

of a profit need not be reasonable, he or she must have a good

faith objective of making a profit.      E.g., Dreicer v. Commis-

sioner, supra at 645; Dunn v. Commissioner, 70 T.C. 715, 720

(1978), affd. on another issue 615 F.2d 578 (2d Cir. 1980); sec.

1.183-2(a), Income Tax Regs.    Petitioners bear the burden of

proving the requisite intent.    E.g., Golanty v. Commissioner, 72

T.C. 411, 426 (1979), affd. without published opinion 647 F.2d

170 (9th Cir. 1981); Johnson v. Commissioner, 59 T.C. 791, 813

(1973), affd. 495 F.2d 1079 (6th Cir. 1974).     Whether a taxpayer

is engaged in an activity with the requisite profit objective is

determined from all the facts and circumstances.     E.g., Hulter v.

Commissioner, supra at 393; Taube v. Commissioner, 88 T.C. 464,

480 (1987); Golanty v. Commissioner, supra at 426; sec. 1.183-

2(a) and (b), Income tax Regs.    More weight is given to objective

facts than to the taxpayer's mere statement of his or her intent.

E.g., Dreicer v. Commissioner, supra at 645; sec. 1.183-2(a),

Income Tax Regs.

     The regulations promulgated under section 183 list the

following nine factors that should normally be taken into account

in determining whether an activity is engaged in for profit:

(1) The manner in which the taxpayer carried on the activity,
                                - 11 -

(2) the expertise of the taxpayer or his advisers, (3) the time

and effort expended by the taxpayer in carrying on the activity,

(4) the expectation that assets used in the activity may appreci-

ate 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) the extent to which

elements of personal pleasure or recreation are involved.    Sec.

1.183-2(b), Income Tax Regs.    The list of factors in the regula-

tions is not exclusive, and other factors may be considered in

determining whether an activity is engaged in for profit.    No

single factor is dispositive.    E.g., Golanty v. Commissioner,

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

tion of a profit objective does not depend on counting the number

of factors that support each party's position.    E.g., Dunn v.

Commissioner, supra at 720; sec. 1.183-2(b), Income Tax Regs.

     Petitioners contend that during 1992 and 1993 they were

engaged in the roping horse activity for profit within the

meaning of section 183.   Respondent disagrees.   On the record

before us, we sustain respondent's position.

     Mr. Haun has owned horses and competed with them since he

was a child.   Since then, he has enjoyed using horses for, inter

alia, roping, trail riding, and hog hunting and has participated

in various recreational activities involving roping horses,
                              - 12 -

including attending roping horse shows, races, and competitions.

Sometime during 1991, petitioners started the roping horse

activity on the Haughton property, which reduced somewhat Mr.

Haun's participation in those recreational activities.   However,

petitioners have failed to establish that during the years at

issue (or at any other time) they projected the future income,

expenses, or profits that they expected to be generated by the

roping horse activity.   Although during the years at issue

petitioners apparently retained adequate records relating to the

expenses that they incurred in the roping horse activity so as to

enable them and respondent to stipulate to the amount of loss for

each such year to which they would be entitled in the event that

the Court were to find that they engaged in that activity with an

objective of making a profit within the meaning of section 183,3

they have not established that they had a business plan for

generating a profit from the roping horse activity.

     Prior to the years at issue, Mr. Haun consulted a lawyer who

advised him to incorporate the roping horse activity, which

petitioners did prior to 1993.   Mr. Haun also consulted a certi-

fied public accountant, who prepared petitioners' 1991 return,

and two professional horse trainers who discussed with Mr. Haun

the demand for and the difficulty of finding good horses, the

prices at which certain horses were bought and sold, certain team


     3
         See supra note 2.
                               - 13 -

roping sales that had just started, and the USTRC.     However,

there is nothing in the record establishing that the individuals

to whom Mr. Haun spoke prior to the years at issue had discus-

sions with, or made any recommendations to, petitioners with

respect to making the roping horse activity profitable or that

petitioners accepted any such recommendations that they might

have made.    In this connection, petitioners did not call as

witnesses any of the individuals to whom Mr. Haun spoke prior to

the years at issue.   We presume that they did not call them as

witnesses because their testimony would have been unfavorable to

petitioners' position in this case.      Wichita Terminal Elevator

Co. v. Commissioner, 6 T.C. 1158, 1165 (1946), affd. 162 F.2d 513

(10th Cir. 1947).

     Nor have petitioners shown that they changed the operation

of the roping horse activity during or after the years at issue

in order to generate a profit or that they hired any individual

with the expertise and experience necessary to make that activity

profitable.    In fact, since the roping arena was constructed by

Mr. Haun in 1991 through to the date of the trial in this case,

that arena did not have any bleachers or lights and was not

suitable for staging events for either roping horse competitions

or roping horse practice sessions.      Petitioners could have held

roping horse competitions in the roping arena since it was

completed in September 1991 for which entry fees could have been

charged if they had added lights, leased or purchased cattle, and
                              - 14 -

hired some help.   They also could have held roping horse practice

sessions in that arena since that time for which entry fees could

have been charged without hiring anyone if they had added lights

and leased or purchased cattle.   Although at some time not

disclosed by the record petitioners had purchased lights and made

arrangements to purchase cattle, both of which were needed to

hold roping horse competitions and practice sessions, as of the

trial date in this case those lights had not been installed in

the roping arena, and petitioners had not purchased those cattle,

hired anyone to assist them, or held any roping horse competi-

tions or practice sessions in the roping arena.

     Although during and after the years at issue Mr. Haun

performed virtually all of the tasks relating to the roping horse

activity, he was able to, and did, spend time in that activity

only on the weekends and before and after his full-time work at

BellSouth during the week.   Part of the time on the weekends that

Mr. Haun spent during the years at issue in the roping horse

activity was recreational.   We find the nature of the tasks and

the amount of time that Mr. Haun spent in the roping horse

activity during and after the years at issue to be consistent

with his lifetime enjoyment of horses.

     Petitioners had sufficient income during the years at

issue,4 notwithstanding the losses from the roping horse activity

     4
         Petitioners reported the following amounts of wage income
                                                    (continued...)
                                  - 15 -

which they attempted to use to reduce their tax liability for

those years.5

     Petitioners contend that they expected the Haughton property

and all of the horses, equipment, saddles, pipe, and tack to

appreciate in value.      Turning first to the Haughton property,

petitioners claim on brief that they paid $60,000 for that

property, although the record establishes only that they offered

to buy that property for $60,000.      According to Mr Haun's testi-

mony, the fair market value of the Haughton property at the time

of trial in March 1998 was approximately $150,000.      On the


     4
      (...continued)
in their returns for 1991 through 1996:

                  Year            Wage Income
                  1991             $71,659
                  1992              72,345
                  1993              84,565
                  1994              84,167
                  1995              99,366
                  1996             107,030
                         Total     519,132
     5
        The following income, expenses, and losses from the
roping horse activity were reported in petitioners' returns for
the years 1991 through 1994 and in Rafter H's returns for the
years 1995 and 1996:

     Year                Income     Expenses        Losses
     1991                  -0-       $19,915       $19,915
     1992                  $600       35,108        34,508
     1993                 1,000       45,344        44,344
     1994                  -0-        29,712        29,712
     1995                   901       26,949        26,048
     1996                  -0-        24,705        24,705
         Totals           2,501      181,733       179,232
                              - 16 -

instant record, we are not satisfied that petitioners paid

$60,000 to acquire that property.   Nor are we persuaded by Mr.

Haun's uncorroborated testimony that the fair market value of the

Haughton property at the time of the trial in this case was

approximately $150,000.6

     With respect to the horses, equipment, saddles, pipe, and

tack used in the roping horse activity, at trial Mr Haun esti-

mated that those assets could be sold for an aggregate maximum

amount of approximately $104,000.   We are not persuaded by Mr.

Haun's uncorroborated testimony that, as of the date of the trial

in this case, such an amount could have been received upon the

sale of those assets.   Indeed, Mr. Haun's testimony about the

aggregate amount that he believed could have been received as of

that date from the sale of the five or six7 roping horses used in

     6
        Furthermore, we are not satisfied on the instant record
that the roping horse activity and the holding of the Haughton
property are to be considered one activity for purposes of sec.
183. The deductions attributable to the roping horse activity
over the period 1991 through 1996 that are not directly
attributable to the holding of the Haughton property far exceeded
the income (only $2,501) over that period that was derived from
that activity. See sec. 1.183-1(d)(1), Income Tax Regs. In
addition, it is significant that on Jan. 1, 1995, petitioners
transferred all the interests that they had in the roping horse
activity to their wholly owned corporation Rafter H in exchange
for additional voting common stock in that corporation. However,
they did not transfer to that corporation at that time (or any
other time) any of their interests in the Haughton property.
     7
        Mr. Haun's testimony about the number of horses used in
the roping horse activity during 1992, 1993, and 1994 and as of
the trial herein was vague and/or contradictory. If petitioners
had an actual and honest objective of making a profit from the
                                                   (continued...)
                             - 17 -

the roping horse activity (viz. between $65,000 and $70,000) is

belied by evidence in the record showing that the most that was

received over the period 1991 through 1996 from the sale of a

roping horse was $1,000 during 1993.

     On the record before us, we find that petitioners have

failed to establish that they intended in good faith that any

expected appreciation in the value of the assets used in the

roping horse activity, when realized, would, together with any

income from that activity, exceed the expenses therefrom.

     We have considered and reject all of petitioners' other

claims and contentions with respect to the roping horse activity.

     Based on our review of the entire record before us, we find

that petitioners have failed to prove that during the years at

issue the roping horse activity was an activity engaged in for

profit within the meaning of section 183.    Accordingly, we

sustain respondent's determinations.

     To reflect the foregoing,

                                      Decision will be entered

                                 for respondent.




     7
      (...continued)
roping horse activity, we would have expected Mr. Haun's
recollection about the number of horses used in that activity to
be clear and specific.
