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Tolin v Commissioner of Internal Revenue

Case No. 17318-08 (U.S. Tax Ct., Apr. 9, 2014)

Respondent determined deficiencies in petitioner’s Federal income tax for 2002, 2003, and 2004 of $10,256, $13,179, and $24,231, respectively, and additions to tax under section 6651(a)(1) of $2,564, $1,977, and $6,058, respectively. After concessions, the sole issue for decision is whether losses petitioner sustained in the operation of a thoroughbred horse breeding and racing activity (thoroughbred activity) were passive activity losses.


Some of the facts have been stipulated and are so found. Petitioner resided in Minnesota at the time he filed the petition.

Petitioner became licensed to practice law in Minnesota in 1977 and maintained a general solo practice in Minneapolis throughout the years at issue. He also devoted significant time to the thoroughbred activity, which involved his effort to profit from breeding a stallion he owned named “Choosing Choice”. At trial petitioner estimated that he had practiced law for 1,200 hours in 2002, 1,100 hours in 2003, and 1,000 hours in 2004. The result in this case turns on the amount of time he devoted to the thoroughbred activity in each of those years.


Petitioner has enjoyed horse racing since he was an adolescent. He became involved in thoroughbred horse breeding and racing in 1990 when he purchased his first racehorse, a Minnesota-bred yearling (a one-year-old horse). He was representing a client before the Minnesota Racing Commission at the time, and it was his exposure to the industry through this representation that motivated his purchase. The following year petitioner bought a mare from the trainer he had hired to train the yearling. The mare had knee problems and could no longer race, so petitioner moved the horse to Florida in 1992 and bred it to a stallion there.


Judge(s): Joseph Gale
Jurisdiction: U.S. Tax Court
Related Categories: Agriculture , Civil Procedure , Communications , Competition , Contracts , Education , Immigration , Insurance , International , Securities , Taxation , Transportation
Circuit Court Judge(s)
Joseph Gale

Petitioner Lawyer(s) Petitioner Law Firm(s)
Richard Craigo

Respondent Lawyer(s) Respondent Law Firm(s)
Ardney Boland, III Internal Revenue Service
Emile Herbert, III Internal Revenue Service



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subscribed to and read a number of publications relating to the thoroughbred horse participation provided in subparagraphs (1), (3), and (7) of section 1.469-5t(a), activity in 2002. [*41] early and using his phone; on many days the origin of his outgoing calls while petitioner spent time during each trip inspecting his horses and managing in late spring 2001 petitioner began searching for a suitable place to stand [*44] which show he placed 1,950 long-distance calls to louisiana numbers that of approximately 270 hours for 2004 is reasonable. all foals born during a given calendar year are treated as though they were4 narrative summary, we do not think that diminishes the overall credibility of his [*22] sired by choosing choice as a result of petitioner’s promotional efforts. on he also devoted significant time to the thoroughbred activity, which involved his promoted choosing choice to breeders during champions day and other ltba including his belief that the owner was directing interested breeders away from their care, most of his work was devoted to stallion promotion. his primary the injury prevented choosing choice from racing for the remainder of racing in louisiana at the time. three trips, in february, may, and august, he worked in both the folsom area and petitioner likely accounted for small amounts of telephone time elsewhere in his petitioner almost daily throughout the years at issue, and he estimated that he spent industry and attended seminars regarding equine health problems. louisiana, the telephone was petitioner’s primary means of developing the have “certainly occurred”. id. to canterbury park. we do not doubt petitioner’s testimony regarding the time he discussion to subparagraph (1) because, as explained below, we conclude that unlike respondent, we see dramatic differences (besides the destination) garrett gomez rode choosing choice in the rebel stakes. choosing choice was foaled by petitioner’s mare in 1993. petitioner sent while there. the parties stipulated that petitioner traveled to louisiana in 2002 generally, any work done by an individual in connection with an activity in year, see sec. 469(a), and the taxpayer generally has the burden of proving material participated in the rental of their two hawaiian condominiums. a significant photographs of the new foals to include in his advertisement for the 2003 stallion litigation and is based in large part on petitioner’s “unreliable memory”. inspected two new foals that had been sired by choosing choice with his own choosing choice, and the results of petitioner’s promotional efforts. disregard the time he spent there for purposes of determining material july and october, respectively. however, neither of his two-year-olds commenced [*12] primary goal during the years at issue was to breed choosing choice to as office. although he did much of his work in minnesota, petitioner made 14 three- yearlings, and traveled to lafayette to meet with mr. thibodaux. petitioner’s -22- success in crossing the sire bloodlines of a stallion and a broodmare makes it more races he ran, finished third in 3 others, and earned $77,638. south central louisiana. he usually stayed with the sebastiens, and his meetings ltba. in addition to champions day, he began attending other ltba meetings choosing choice in louisiana, and he had entered into a business relationship summary are corroborated by phone records, third-party witness testimony, the board petitioner’s three mares. petitioner had the horses transported from texas to by the foals of petitioner’s mares, planning for and monitoring their development to the thoroughbred activity, which usually lasted well into the evening. the 290 petitioner monitored activities at sebastien farms in daily telephone widely bred and ultimately successful. petitioner remained in continual contact he had an “a++ nick rating” (based on crossing the bloodlines of his sire and contemporaneous notations next to the contact information of ltba members in offsetting passive income or disposes of the taxpayer’s entire interest in the first, many breeders are hesitant to breed to a stallion until they can gauge how by mr. thibodaux to shop for mares (although he did not purchase one) and to a “passive activity loss” is the amount by which the aggregate losses from all each year. the years at issue. the ltba implemented and was responsible for administering participation, rule 142(a); see also harrison v. commissioner, t.c. memo.23 [*17] driving to nearby horse farms where he met with the owners and managers petitioner was interested in and knowledgeable about pedigree analysis15 evidence of his business calls dwarfs anything in the existing caselaw. he within louisiana in 2003, so he was able to visit more farms and venues outside farms to inspect new foals and promote his stallion. hours. petitioner’s estimate includes those calls as well as smaller amounts of telephone conversations with him, which were consistent with his own commuting expenses). we fail to see how petitioner’s flights could be considered of the years at issue. see sec. 469(a), (c)(1), (h)(1), (l)(1). fowler v. commissioner, t.c. memo. 2002-223. reasonable. sometimes giving petitioner directions to farms petitioner planned on visiting. taxpayer. a “passive activity” is, generally speaking, the conduct of any trade or22 afternoon or evening on only about half of his trips, and on a number of travel who prepared the horse for racing. choosing choice’s racing career began at the 4:178. and prospective tenants. the taxpayers did not introduce telephone records or any studying and reviewing financial statements, is not treated as participation unless state) where one of his yearlings eventually received training for four months of t.c. memo. 1993-578; see also moss v. commissioner, 135 t.c. 365, 369 (2010); sending breeding packages to more than 50 breeders and maintaining his in-person choice. he mailed breeding packages to approximately 40 breeders in 2002. great deal in 2002. being new to thoroughbred breeding in louisiana he had -5- which he owns an interest at the time the work is done is treated as “participation” their mares to choosing choice. because petitioner’s ultimate goal was to breed population. as 37.17 regarding his calls to louisiana credible, and there is no evidence suggesting that all the evidence, we find that an estimate of between 120 and 150 hours is louisiana champions day weekend in december. as in the previous year he [*19] petitioner traveled to louisiana twice during the 2002 breeding season, in activity to an extent, continuously monitoring the condition and progress of his petitioner attended a two-day yearling auction put on by the ltba in and racing in louisiana for over 35 years as an owner, adviser, and bloodstock involved in thoroughbred horse breeding and racing in 1990 when he purchased promotional activity involved driving to horse breeding farms and meeting with memorandum findings of fact and opinion anyone in louisiana for any other purpose. combined, the partial records for instances he was unable to work a full day. deficiency determination petitioner relies to satisfy the “more than 500 hours” test should not qualify as analyze choosing choice’s pedigree. nicking is based on the premise that past we first address the telephone conversations. given his distance from stallion. he had developed some knowledgeable contacts, namely messrs. is supported by third-party witness testimony. mr. sebastien testified that he met any remaining hours of participation petitioner needs to satisfy the more- promotional and managerial work in south central louisiana during each of the six amount of time he devoted to the thoroughbred activity in each of those years. thoroughbred horse breeding in louisiana. the stud fee for choosing choice we begin by making three observations regarding petitioner’s operation of with messrs. sebastien and thibodaux took place in washington or nearby bookkeeping and recordkeeping 6 [*37] we turn next to petitioner’s trips to louisiana and the work he performed cross between his stallion and any of the solicited breeder’s mares that were with the sebastiens in washington. during the first visit petitioner conferred with where we considered whether married taxpayers living in california had materially in minnesota at the time he filed the petition. estimate of 210 to 250 hours of participation related to petitioner’s trips to disbursed these awards to those entitled to receive them. id. sec. 4:165(a), (c), mating decisions well in advance of the breeding season, so he continued his long- age one year before any other louisiana-bred foals sired by choosing choice.18 louisiana lasting a combined 220 hours. the records do not show the origin of ardney j. boland, iii and emile l. herbert, iii, for respondent. per week working on their farm and employed two individuals who each worked phone calls to be reasonable on the basis of his testimony, their relative success in [*25] expenses. petitioner claimed losses from the thoroughbred activity for all of themselves the primary responsibility of renting the condo. id.; see also assaf v. sebastien daily fees for standing choosing choice and boarding the mares and it double counts time claimed elsewhere in the narrative summary, such as petitioner argues that he is entitled to a shift in the burden of proof23 feb. 26 mar. 11 section 469(a) disallows the passive activity loss of an individual horses, he did not introduce proof of his licensure and does not claim that income tax for 2002, 2003, and 2004 of $10,256, $13,179, and $24,231, packages (updated by him to include his three new foals sired by choosing participation because he failed to satisfactorily explain how his trips to canterbury potential customers in louisiana. messrs. sebastien, thibodaux, and early were pedigree. petitioner personalized the letters by discussing the hypothetical mating activity of any other individual (including individuals who are not the total number of mares bred to choosing choice in 2002 cannot be respondent further argues that a substantial amount of petitioner’s work was typical louisiana stallion owner. third, petitioner enjoyed the thoroughbred for most of 2004, and he arranged for his two yearlings to begin training there in in early 2000, when choosing choice recuperated from his second leg conduct slot machine gaming and were required to use a portion of their net slot -42- again in december before he attended champions day and then drove to sebastien the thoroughbred breeding season generally begins in the middle of7 and they stated that even then his conversations focused on promoting choosing petitioner often stayed with the sebastiens in washington. mr. sebastien there were roughly 200 to 250 stallions and 3,000 to 3,500 broodmares in the identified during their previous telephone conversations.15 born on january 1 of that year. yearlings and discuss their training programs. he also visited farms in the area to training through his discussions with the owners and trainers. however, we will the secretary to prescribe regulations which specify what constitutes “material choosing choice’s stud services. he also visited the farm in doyline where one according to mr. early, a stallion in his third or fourth season is perhaps the most parties. he also observes that the phone records show he made calls to numbers in residence and principal place of business. see horton v. commissioner, 86 t.c. primary objective, such as attending an ltba function or a series of meetings visits to louisiana during the years at issue, most often at ltba events. memo. 2001-296. respondent primarily disputes the time petitioner claims he choice. made “cold calls” to other breeders he selected from the ltba directory to pitch participation related to petitioner’s trips to louisiana in 2002 is reasonable.27 the owners and managers, whom he tried to interest in breeding their mares to promotional breeding packages at these in-person meetings. 2003, through december 31, 2004, and his landline records from august 31, 2003, many questions for mr. early about the incentive programs and the rules and the sebastiens’. aug. 12 aug. 15 louisiana (30 hours less than he claimed in his narrative summary). considering phone with petitioner for approximately 120 hours in each of the years at issue, the years at issue and therefore the volume and duration of calls shown by the choosing choice. at trial petitioner testified that he visited approximately 90 to petitioner reported the results of the thoroughbred activity on schedules c, 2003 show that he made 1,950 long-distance calls to louisiana numbers that lasted maintained a general solo practice in minneapolis throughout the years at issue. stand a stallion, the many stallions standing at each farm, and the lack of control contract with an onsite management company in which they reserved to amount of the participation they claimed with respect to the rental of each result, mr. sebastien was the only contact for a number of individuals who bred that all such calls were related to the thoroughbred activity because he did not call stallion register and gathered the documents he wanted to include in the -40- sebastien farms in august 2001. his stallion and the development of his young horses, particularly the two-year- with these individuals throughout the years at issue, primarily by telephone calls [*24] in the south central part of the state, meeting with the individuals who were -7- dec. 12 dec. 15 young horses. in november he met with the trainers at the folsom training approximately 325 to 350 hours of phone conversations related to the during his trips to louisiana he did promotional and managerial work similar to passive activity. sec. 469(b), (g). many suitable mares as possible in order to get “foals on the ground”. passive activities for the taxable year exceed the aggregate income from all business trips to louisiana; registering his horses for state and national awards; planning for and monitoring the development of his yearlings. morning flight and returning to minneapolis on an evening flight, and in those most of those packages were sent early in the year and related to the 2002 refers us to pohoski v. commissioner, t.c. memo. 1998-17, discussed supra. in characterized petitioner’s visits as “all horse business”. he testified to his package contained pictures of choosing choice, copies of choosing choice’s race responsibility of producing “any necessary videotapes and breeding information in november 2003 petitioner arranged to have his two yearlings moved to spent performing the activities described in his narrative summary, arguing that his material participation in 2003 respondent argues on brief that the time petitioner spent traveling to and27 point many breeders will wait to see whether his progeny can run before breeding as the thoroughbred activity progressed petitioner became active in the21 his promotional efforts were relatively effective as choosing choice was20 petitioner used both the landline at his law office and his cell phone to make consideration, with an average stay for a tenant of 6.5 days. pohoski v. hours during such year; tax regs.; sec. 1.469-5t(a)(1), (f), temporary income tax regs., supra. because guest of the sebastiens during that year. the cell phone records in evidence are activity. sec. 1.469-5t(f)(2)(ii), temporary income tax regs., 53 fed. reg. 5727 effect for the years at issue, and all rule references are to the tax court rules of dec. 8 dec. 12 (7) based on all of the facts and circumstances * * * the under rule 155. petitioner initiated the great majority of these calls. the conversations were on the basis of that evidence we are satisfied that petitioner performed more than reasonable as well. choosing choice was bred to all of petitioner’s mares and about a half dozen of 2002 farm & service directory”, which provided the location and contact information parties’ comprehensive stipulations of fact, and other contemporaneous materials. thoroughbred activity and monitoring his horses. the 311 hours he claimed in the with local breeders and identify potential customers. he also consulted frequently devoting long hours to the thoroughbred activity while in louisiana. although visited sebastien farms from time to time to see and discuss the stallion. as a arkansas, a venue that offered higher purses and better competition than was messrs. sebastien and early both denied seeing petitioner carry on any “social representing a client before the minnesota racing commission at the time, and it -47- promote choosing choice and to pitch mr. early on breeding his own mares to the 500 hours of qualifying “work done” in connection with the thoroughbred activity while the narrative summary is a postevent review of petitioner’s claimed packages. once his materials were prepared, he began making sales calls to [*38] lafayette. with the exception of the trip in december when he stayed in area as they generally were in 2002. petitioner promoted choosing choice at decision will be entered particularly persuasive with respect to 2002 because petitioner was a frequent determining that the claimed losses were passive activity losses. petitioner timely temporary income tax regs., supra, for each of the years at issue. we limit our fees he charged. see la. rev. stat. ann. sec. 4:165(a)(3), (4)(c). he would also schedule or formula by which the stallion and breeder awards were paid, and visit entailed similar activities, and in addition petitioner inspected three new foals the 2004 breeding season was choosing choice’s third in louisiana. from louisiana should not be considered participation for purposes of sec. 469 thoroughbred activity, and the third-party witness testimony convincingly and “breeder awards” which were paid to the owners of the sires and dams of [*46] material participation in 2004 [*33] he frequently spoke on the phone with petitioner, for approximately 35 to 40 the years at issue, which respondent disallowed in a notice of deficiency, -38- solicitation of individuals to breed their mares to choosing choice. he made february and goes through the end of june. apr. 5 apr. 8 (feb. 25, 1988). because of the multiple and varying locations of his horses throughout 2004, the south central part of the state. personally involved in louisiana thoroughbred breeding. second, petitioner stallion and foal registrations and nominations 6 the progress of his yearlings at the folsom training center. on brief petitioner completed the annual paperwork required to register his horses with the ltba, with petitioner during nearly all of petitioner’s trips to louisiana and that the owner of the farm in doyline testified that petitioner called her three28 1030, 1039 (8th cir. 2005), aff’g t.c. memo. 2003-212. -30- supra, are again easily accounted for by his preparation and mailing of telephone records, credit card invoices, and other contemporaneous materials. for met with several trainers to discuss his soon-to-be yearlings. length at a lunch arranged and attended by mr. sebastien about marketing caring for and training his horses and promoting choosing choice. in october commissioner, t.c. memo. 1998-17; see also assaf v. commissioner, t.c. the individual is involved in the day-to-day management or operations of the petitioner began planning for the 2003 breeding season shortly after the the most frequent recipients of petitioner’s telephone calls. mr. sebastien testified stefan a. tolin, petitioner v. louisiana also made sizable annual appropriations for special “stallion awards” purse. given that success, petitioner entered choosing choice in the southwest effort to ensure racing success that would bolster the reputation of choosing for a first-year stallion in louisiana, and the evidence suggests that the number made 2,755 long-distance telephone calls to louisiana numbers that lasted 220 activities that were unrelated to the thoroughbred activity. to that end, respondent in the area, he was also able to compare the foals there to his own. ordinary and necessary business expenses under sec. 162 but not work done in 311 activities. they show that when petitioner was in louisiana he was usually awake choice’s progeny. the parties agree that the addition to tax under sec. 6651(a)(1) will apply to3 specifically addresses pohoski v. commissioner, t.c. memo. 1998-17, a case any deficiency in petitioner’s income tax derived from a passive activity loss such a venue. petitioner eventually called james “butch” sebastien who, with his -29- petitioner’s telephone activity discussed previously, we conclude that an estimate petitioner faced two significant challenges in accomplishing that goal. local breeders and was generally unfamiliar with the scene. and while choosing summary with the assistance of his attorney in preparation for trial, using petitioner did not proffer testimony from his prospective or actual customers, he orleans and folsom when he was in the area to attend champions day and to view tax regs., supra. he initiated, and relied on them for knowledge and advice as he developed the aug. 16 aug. 19 individual participates in the activity on a regular, continuous, and participation necessary for petitioner to prove material participation by satisfaction sebastien, and numerous breeders, petitioner spoke by phone with mr. early a -44- breeding season. petitioner had immediate problems with the texas farm, respectively, and additions to tax under section 6651(a)(1) of $2,564, $1,977, and choosing choice would stand at stud at sebastien farms and the sebastiens would dam), and his bloodlines were highly compatible with most of the american mare occasion but only after receiving approval from petitioner. all of the breeding for a given foal and who could best provide it. once his horses arrived at the 2003 and 2004 he deducted training expenses in addition to the board and care -31- these visits, petitioner sought to interest the farm owners in further use of husband claimed to have spent performing maintenance on the taxpayers’ after doing some research and discussing the situation with his in his stud services; and he was bred to only a few mares that year. dissatisfied, eligible for the various awards offered by those organizations. finally, petitioner section 469 does not prohibit petitioner’s deduction of the loss therefrom for any always related to various aspects of the thoroughbred activity including the [*49] we have considered all the remaining arguments for results contrary to stallion breeding in louisiana was competitive; during the years at issue17 olds. those horses reached racing age in the middle of 2004, and any early racing 2004 [*36] commissioner, t.c. memo. 2005-14; harrison v. commissioner, t.c. round trip flight. however, on brief petitioner reduced the time he claimed for -43- choice’s nicking analysis, and a video compilation of choosing choice’s notable network with a large group of louisiana horse breeders. he donated a stallion arrangements to move his breeding operation. activity and was determined to make it successful; as a result he micromanaged the promotional breeding packages and the miscellaneous administrative tasks he race course in new orleans, louisiana. attend louisiana champions day, a program of stakes races limited to louisiana- prepare and send promotional breeding packages 42 gale, judge: respondent determined deficiencies in petitioner’s federal visited canterbury park early in the morning during its racing season to converse choosing choice finished third in the only other race he ran in 1995, at a5 weekend of every december. in addition to the races, champions day weekend result charts, newspaper articles about choosing choice, a copy of choosing prematurely ended his racing career. overall, choosing choice won 6 of the 16 louisiana throughout the years at issue. choosing choice finished the race three lengths behind ide. famed jockey6 173 hours (i.e., not including calls he made from his cell phone while in year-olds, which would become eligible to race in the middle of the year, in an secretary-treasurer of the louisiana thoroughbred breeders association (ltba),8 deem respondent to have conceded that petitioner operated the thoroughbred pursuant to sec. 7491(a). however, our resolution of this case is based on the mile --and agreed that if choosing choice could duplicate himself he would be a10 the thoroughbred activity which are undisputed by the parties and which guide our activities” during his visits to louisiana other than an occasional meal or drink, memo. 2005-14; harrison v. commissioner, t.c. memo. 1996-509; cf. merino v. than 500 hours” test of section 1.469-5t(a)(1), temporary income tax regs., states and tried to interest them in choosing choice. petitioner did. farms in northwest louisiana when he visited the farm in doyline where one of his petitioner’s early promotional efforts generated some interest in choosing became licensed as a bloodstock agent in minnesota in 2002 and that he often substantial basis during such year. practice of arriving in louisiana on a morning flight and departing in the late specialized in pedigree analysis, commonly known as “nicking”, to research and consistent with the witness testimony, the phone records in evidence reveal petitioner’s breeding him in louisiana, and he had run only one race in the state. [*21] promotion were generally unchanged, although he traveled more extensively then certainly the means he used to estimate the extent of his 2002 phone calls was the witness testimony and other evidence, we believe that an estimate of five of choosing choice’s six wins were in races of seven furlongs or10 [*42] considering all the evidence, we find that an estimate of 150 to 180 hours of renders his estimate an impermissible “guesstimate”, petitioner counters that the the first couple of years are also tough, but breeders are generally more19 [*31] analysis of petitioner’s narrative summary and the supporting evidence. with individuals who cared for his horses. he spent much of the remaining time that he requested complete telephone records for 2002 through 2004 after ltba directory and consulting messrs. thibodaux and sebastien regarding [*23] to him. nonetheless, petitioner’s promotional efforts and the first crop of19 supra, we conclude that petitioner was a material participant in the thoroughbred reasonable, and indeed conservative. petitioner’s trips to louisiana in 2003 included a five-day visit in march as we found for the previous two years, any remaining hours of telephone conversations with his associates, advisors, and potential customers; over the following days: attendance. in addition to attending champions day, petitioner visited various them on breeding their mares to choosing choice. although most of his efforts [*47] arrived in louisiana returned to minnesota petitioner testified that when he was in louisiana regardless of where he -16- his activities the previous year. while promoting choosing choice remained the breeding program, and he took a four-day trip to louisiana in august 2002 during business in which the taxpayer does not “materially participate”. sec. 469(c)(1). of the individual in the activity. sec. 1.469-5(f)(1), income tax regs. however, changed little from 2002 to 2003. when he was in minnesota petitioner made estimated that he did 168 hours of work in connection with his three trips to the folsom training center in folsom, louisiana. in december, petitioner made a of the more-than-500-hours test are accounted for by his preparation and mailing -15- sebastien farms, where the foal remained for the rest of the year. thoroughbred activity in 2003 is reasonable. wherein, in addition to visiting sebastien farms to inspect his foals and confer in addition to his primary activities, petitioner performed administrative and recollection, and indicate the magnitude of his promotional calls. as additional -48- horses and seeking information from the individuals who cared for and trained stayed, he would rise early in the morning and set off for a full day of work related [*9] asked petitioner to send him a video and pedigree of that stallion, which choice) to nearly 50 breeders that year. likewise, his methods of in-person overall, the manner in which petitioner operated the thoroughbred activity attending seminars 25 yearlings trained. similarly, he made promotional visits to farms between new developed into successful racers. petitioner was confident that choosing choice’s in 2002, 862 hours in 2003, and 937.5 hours in 2004. -34- horse because of his racing ability. he engaged a thoroughbred consultant who farm in the middle of the 2000 breeding season; there was little interest generated7 them. during multiple visits to louisiana each year. petitioner used the ltba’s “2002 business if the taxpayer is involved in the operations of the trade or business on a louisiana-bred thoroughbred horses that finished first, second, or third in certain 100 farms across the state for that purpose during the years at issue. he also each travel day by 5 hours, resulting in a revised estimate of 240 hours, because he fee provided in the contract or one-half of the net stud fees in return for standing activity with a profit motive, see sec. 183, that the expenses for which he claimed phone records in evidence show that petitioner was able to follow his preferred his copy of the 2002 farm & service directory which was stipulated by the revised estimate of seven hours of work in louisiana on each travel day (in visit sebastien farms and confer with mr. sebastien concerning planning for the 51 cities and towns in all areas of louisiana. given that the phone records do not alone and without a recreational purpose to his trips. we also fail to see how the breeding choosing choice. all section references are to the internal revenue code of 1986, as in1 [*26] in general, a taxpayer is treated as materially participating in a trade or whether losses petitioner sustained in the operation of a thoroughbred horse arrived in louisiana returned to minnesota choosing choice’s first breeding season in louisiana. he began studying the -6- of his yearlings was being trained as well as a number of other farms in the agent and had extensive knowledge of the industry in the state. they spoke at12 the nearly complete 2004 phone records in evidence show that petitioner to four times a week during the four-month period she cared for one of petitioner’s * * * * * * considered stallion promotion to be critically important to the success of the these overtures by long-distance communication from minneapolis and in person attended the races and banquet, donated one of choosing choice’s stallion seasons related to the thoroughbred activity. however, we found petitioner’s testimony with mr. sebastien, which were memorialized in a “stallion standing & boarding arranging for insurance or placing the print advertisements, and because it is supra. contemporaneous daily time reports or logs are not required. id. primary objective of his work, petitioner also devoted considerable time to 2003. he continued his long-distance promotional activities and mailed breeding injury, petitioner had him transported to a horse breeding farm in new mexico northwest region to promote choosing choice. about”. he witnessed petitioner’s distributing promotional materials to breeders planned on breeding the mares to choosing choice every year and having the hours during the taxable year, and such individual’s participation in promotional breeding packages, from which he assembled a master copy. purchase. the following year petitioner bought a mare from the trainer he had prove the extent of his activities in louisiana and that the time he claimed therefor petitioner’s in-state travel was greater than in the previous years. he did testimonies of messrs. sebastien and early that their phone conversations with breeders. states other than louisiana, petitioner argues that his estimate of 311 hours is agreement” dated october 7, 2001. therein, petitioner agreed to pay mr. 2003 2004 was a leap year.1 -37- breeding farms north of lake pontchartrain to promote choosing choice, and he petitioner would become eligible to earn stallion awards in addition to any stud mr. thibodaux and contacted a number of horse sales companies he knew in -32- [*27] sec. 1.469-5t(a), temporary income tax regs., supra. material ultimately, petitioner has shown by reasonable means that he devoted most -27- letter grades to denote the compatibility between the bloodlines of a hypothetical thoroughbred consultant, petitioner decided to breed choosing choice in that he would at times try to facilitate transactions between buyers and sellers of in his narrative summary petitioner provided the following breakdown of to the charity auction, and promoted choosing choice to the other breeders in party witness testimony and objective evidence indicates that it is an accurate mr. thibodaux did not charge any fee for his consultation.13 mares and also visited several farms in the south central region boarding foals provide corroborating testimony from any of the breeders whose farms he visited [*5] petitioner believed that choosing choice could become a profitable stud spoke with petitioner by telephone every week to 10 days when petitioner’s horses likely that they will produce a successful racehorse if bred together than if bred to -17- that petitioner called him twice daily in 2002 and estimated that he spoke on the of his broodmares sired by choosing choice. on his promotional visits to farms champions day events provided petitioner his first opportunity to meet and eventual winner (a horse named ide) when he suffered a slab fracture in his right with owners and trainers while the horses were being trained. while he testified first two years than the next two years, according to mr. early. petitioner’s two-year-olds continued training at the folsom training center hours of participation petitioner claims in his narrative summary consists of 12 docket no. 17318-08. filed april 9, 2014. foals. with about 100 of the hours each year being attributable to calls petitioner made to owners of interests in the activity) for such year; for example, petitioner arrived in baton rouge, louisiana, around 10 a.m.26 minneapolis where petitioner lived and worked. petitioner testified that he thibodaux. mr. thibodaux had been involved in thoroughbred horse breeding (1) the individual participates in the activity for more than 500 [*20] which he stayed at sebastien farms and traveled to area farms recommended completed. accordingly, we conclude that petitioner was a material participant in -28- than-500-hours test of section 1.469-5t(a)(1), temporary income tax regs., in january 2002 petitioner organized his promotional campaign for distance promotion year round and mailed a number of packages relating to the passive activity losses are suspended until the taxpayer either has22 however, for his next trip he arrived in baton rouge after 6 p.m. on december 11, seeks to coordinate and develop the thoroughbred horse industry in louisiana. its petitioner estimated that he spent 356 hours on long-distance telephone calls him were more frequent in 2002, as well as various business calls he made to trainers, and individuals in 2003 for purposes of deciding where to send his [*7] petitioner owned three mares that he bred to choosing choice in 2001. he at trial petitioner introduced a narrative summary in which he describes the more lucrative racing purses if he owned the horses when they became successful of each full day he spent in louisiana to the thoroughbred activity. however, his promote choosing choice. he also inspected his own horses and took issue. both publications were published by the ltba and concerned -8- [*28] reasonable means include (but are not limited to) the identification of choosing choice. months of cell phone records and 4-1/2 months of records for his office landline, during the same trip mr. sebastien introduced petitioner to his friend bud he anticipated having over the promotion of choosing choice if he were to select -9- t.c. memo. 2014-65 records in evidence are representative of the earlier records he could not obtain. parties) and the miscellaneous administrative tasks he completed. see harrison v. participation of a taxpayer in an activity is determined separately for each taxable determined with precision from the record. however, messrs. thibodaux, petitioned for redetermination. also agreed to split with mr. sebastien the stud fees received during the first four addressed herein. the bulk of petitioner’s promotional efforts involved his personal would follow up by mailing them a promotional breeding package. the breeding14 in memphis or houston, an estimate of five hours each way is reasonable. thibodaux and early, who were willing to advise him as he began breeding as a place to breed his stallion only in early 2001. thus he was not known by the the two previous years, petitioner’s primary activities involved his telephone providers no longer had the oldest of the requested records. periods of those days. although there are no records in evidence for 2002, we find generally speaking, a bloodstock agent arranges transactions between12 impressed with choosing choice’s speed--particularly in races of less than one the time. during the call mr. sebastien expressed interest in choosing choice and he obtained the advice of mr. thibodaux and others in investigating the best mr. pohoski’s telephone calls related to the rental of the maui condominium were the breeding aspect of petitioner’s thoroughbred activity changed little in respondent argues that petitioner’s estimate should be discounted because in addition to his telephone conversations with mr. thibodaux, mr. third trip in 2003 to louisiana, traveling to new orleans to attend champions day mr. thibodaux and mr. sebastien and visited various horse farms in south central [*39] as early as 5 a.m. when he stayed with the sebastiens to begin working. mr. beginning with the first crop of foals born in the state, and would benefit from the buyers and sellers of horses. bloodstock agents are valuable for their knowledge obtain and copy promotional materials 7 days he was unable to spend any significant time working in louisiana.26 trial petitioner estimated that he had practiced law for 1,200 hours in 2002, 1,100 training available in the area. traveling expenses were ordinary and necessary under sec. 162 (and thus not conversations, for which he claimed 267 hours of participation, and his trips to stallion. design and place print ads 7 to breed their mares to choosing choice. petitioner also called various farms, tests: review and pay bills 16 petitioner has enjoyed horse racing since he was an adolescent. he became [*16] because of the breeder awards and other financial opportunities presented the expansion of petitioner’s in-state travel was attributable to his desire to oct. 2 oct. 5 petitioner retained the right to stallion awards attributable to any other11 early testified that he met with petitioner during more than half of petitioner’s -3- sebastien, and early all testified that choosing choice exceeded their expectations prospective customers. he prepared and placed an advertisement in that year’s petitioner distributed materials similar to those contained in the16 performing services as a bloodstock agent was the primary motivation for his trips choice finished out of the money in the southwest stakes, but he held the lead for [*29] paying bills; recordkeeping; and continuing education. cumulatively,24 louisiana is reasonable. estimates are unreliable because the summary was prepared solely for purposes of obtain and review list of ltba members 9 -10- choosing choice, and petitioner continued to heavily promote the stallion in 2004, findings of fact -41- testimonies of messrs. sebastien and early regarding petitioner’s work habits spent at canterbury park or his claim that he learned about racehorse injuries and [*13] thoroughbred activity. ultimately, petitioner believed he could overcome and breeders accounts these conversations were always related to the thoroughbred activity. deductions were ordinary and necessary, see sec. 162, and that he maintained petitioner traveled to louisiana six times in 2004. during each of his first [*14] when solicited breeders expressed interest in choosing choice, petitioner nov. 15 nov. 18 review and place stallion insurance 2 season to the charity auction and spent the weekend promoting choosing choice hawaiian condominiums during a two-week “working vacation” they took with la. rev. stat. ann. secs. 4:177, 4:218. bred, raised, sold, and boarded thoroughbred horses. the sebastiens maintained a9 breeding and racing activity (thoroughbred activity) were passive activity losses.3 difficult to promote because his first foals are approaching racing age, and at that materials. id. while the regulations permit taxpayers some latitude in establishing texas and florida in an effort to determine which course of preparation was best -21- any calls he received from louisiana numbers. petitioner’s fifth and final trip to louisiana in 2002 was to new orleans for the extent of their participation in an activity, we have consistently held that they 1996 and all of 1997. he ran seven times in 1998, primarily shorter races at tracks respondent contends that petitioner did not introduce sufficient evidence to petitioner’s description of his activities and work habits while in louisiana in early october 2001 petitioner visited washington, louisiana, where he kept the books, and arranged for mortality insurance on choosing choice. he also when he spent most of his time in shreveport for the yearling sale). in view of the 2003 breeding season in the later months of 2002. was not always able to follow his preferred practice of arriving in louisiana on a petitioner also claims time each year for his purported work as a24 reading publications regarding thoroughbred horses 71 racers. see id. sec. 4:165(a)(2), (4)(a) and (b). accordingly, he began making memo. 1996-509. petitioner argues that if the means used to prove the extent of time for thoroughbred activity calls he received and calls he placed to individuals he called louisiana for purposes other than the thoroughbred activity. and while should solicit. during 2002 petitioner’s activities were generally confined to the difficulties inherent in attracting customers by heavily promoting choosing he argues that the records in evidence support the witnesses’ recollections of their [*35] in response to respondent’s claim that his lack of phone records for 2002 resulting foals sold or trained to race. by breeding choosing choice in louisiana, stakes and the rebel stakes, graded stakes races with fields that included some of establishes that his promotional efforts far surpassed the promotional efforts of a benefit of his limited opportunities for in-person interactions by meeting with as nonetheless, petitioner was determined to prove choosing choice as a proof of his promotional calls petitioner points to the copious amounts of was his exposure to the industry through this representation that motivated his the breeding packages was $1,000 for a live foal. louisiana). the nearly complete 2004 records show 2,755 long-distance calls to passive activities for such year. sec. 469(d)(1). while petitioner spent somewhat less time on the telephone in 2004, he see sec. 1.469-5t(f)(2)(ii), temporary income tax regs., supra; see also assaf v. choosing choice to trainers in florida and texas in 1994 and 1995, respectively, work he performed in connection with the thoroughbred activity and estimates the according to mr. early, choosing choice was “all [petitioner] ever wanted to talk by any reasonable means. sec. 1.469-5t(f)(4), temporary income tax regs., profit or loss from business, that he attached to his returns for the years at issue. petitioner made three trips to louisiana in 2003, over the following days: available at sam houston. choosing choice ran well in his first races at oaklawn, facilities he selected, petitioner called frequently to provide instructions regarding depiction of his thoroughbred activity during the years at issue. see pohoski v. the ultimate success of the thoroughbred activity depended on the racing opinion reviewing and placing mortality insurance on choosing choice; reviewing and register. petitioner made another four-day trip to louisiana in november 2002 to between 50 and 100 hours in such conversations annually. mr. early testified that [*10] the years at issue, mr. sebastien was to receive the greater of the standing wife linda, owned and operated sebastien farms in washington, louisiana, which louisiana. as its name suggests, the ltba, then and now, is an organization that that petitioner called louisiana numbers multiple times daily. petitioner testified grocery stores, pharmacies, and restaurants, demonstrate that he engaged in some insurance, nomination and registration fees, veterinary expenses, and travel. for -26- dec. 11 dec. 15 choosing choice to as many acceptable mares as possible, he gave mr. sebastien prepare video of choosing choice 6 racing in 2004. only one of petitioner’s mares gave birth to a foal in 2004 at in anticipation of the 2002 breeding season. [*4] in january 1996 petitioner moved choosing choice to oaklawn park in likely to test the waters and breed to a new stallion with a good pedigree in his he claimed deductions each year for advertising, board and care, mortality of the long-distance calls to louisiana shown in the phone records, together with offspring would inherit his speed and that the stallion would become recognized as regs. considering that petitioner’s air travel usually involved a connecting flight where his stud services were first offered for sale. choosing choice arrived at the should be severely discounted. respondent observes that petitioner did not regular, continuous, and substantial basis. sec. 469(h)(1). congress authorized years of the contract after expenses, including board, were deducted; thus, during the maui condo was rented for 22 weeks during the year under25 addition to five hours of travel time) requires a further downward adjustment. the tests in section 1.469-5t(a), temporary income tax regs., 53 fed. reg. 5725 than-500-hours test of section 1.469-5t(a)(1), temporary income tax regs., the activity for the taxable year is not less than the participation in the 1996-509. in states other than louisiana. considering the phone records and the evidence of mar. 21 mar. 25 -39- choosing choice’s breeding services, and mr. thibodaux agreed to provide presented sufficient evidence, in addition to his own credible testimony, to prove breeding season; however, petitioner soon learned that some breeders made their choosing choice. mr. sebastien was also given the right to breed his mares to success they achieved was certain to be a boon to the thoroughbred activity. as in [*11] two months later petitioner visited new orleans to join the ltba and “bloodstock agent” at the canterbury park racetrack in shakopee, minnesota. we do not consider petitioner’s claim. see blodgett v. commissioner, 394 f.3d mating pair. the results of choosing choice’s nicking analysis were promising; does not qualify as participation. see sec. 1.469-5t(f)(2)(ii), temporary income on molokai). in doing so we found the taxpayers’ estimate of mr. pohoski’s related to the thoroughbred activity in 2003. he based his estimate on over eight supra. we reject this argument. petitioner was directly involved in the day-to-day telephoned the breeders he discussed with messrs. thibodaux and sebastien and in 2004 petitioner’s thoroughbred activity focused both on the promotion of their two children. in doing so we reasoned that the estimate did not allow his thoroughbred activity for 2002: -20- and offering to perform nicking reports for their mares and he testified to material participation in 2002 account for any thoroughbred calls that he received, and considering the state. commissioner, t.c. memo. 1996-509. hours in 2003, and 1,000 hours in 2004. the result in this case turns on the other contemporaneous evidence of the duration of these calls, relying instead on 589, 593-594 (1986). however, respondent has conceded that petitioner’s the print advertisements directed inquiries to mr. sebastien, and breeders participated in the rental of their condominium on maui (but not the condominium petitioner was new to thoroughbred breeding in louisiana--he began considering it arrived in louisiana returned to minnesota trips and in the new orleans and folsom areas during all but one trip (in october, made six trips to louisiana that year over the following days: would change as the day progressed, indicating he was on the road for long approximately 35 hours per week. the breeders’ cup, and the jockey club, which was necessary to make them -25- receive any breeder awards attributable to the racing success of his mares’ foals, -36- and that his credit card records in evidence, which show charges at a number of 2002 season ended. he decided it was advisable to acquire more mares for his are moot, without merit, or unnecessary to reach. phone and in person, speaking with him both about ltba matters and promoting mr. early had over 30 years of experience with thoroughbred breeding and8 between 50 and 70 horses during the years at issue. the sebastiens both had full- early april and in early june. for both trips he flew into baton rouge and stayed petitioner contends that his thoroughbred activity was similar throughout surpassed petitioner’s threshold goal of 15 to 20 mares and may have been as high petitioner became licensed to practice law in minnesota in 1977 and work in south central louisiana; however, his activities were not confined to that advertisements for choosing choice’s breeding services and had them placed in the remaining hours of participation petitioner needs to satisfy the “more -35- he materially participated, the thoroughbred activity was not a passive activity and louisiana laws that incentivized the in-state ownership, breeding, and racing of [*48] of promotional breeding packages and the miscellaneous administrative united states tax court looking for a new place to breed choosing choice. [*40] that case we significantly discounted the 10.7 hours per day the taxpayer (3) the individual participates in the activity for more than 100 well that stallion’s progeny perform at the track, and choosing choice had not louisiana, for which he claimed 300 hours. supra, are easily accounted for by his preparation and mailing of the promotional foals (resulting from the 2002 breeding season) had generated some exposure for on july 24, 2003, and departed from baton rouge after 4 p.m. on july 27. those reached herein. to the extent not discussed, we conclude those arguments louisiana to promote choosing choice’s stud services to the owners. the second [*34] any incoming calls; thus they are not helpful in establishing the extent of participation requirement in a given year by satisfying any one of the following preponderance of the evidence rather than the allocation of the burden of proof, so the later records supportive because of the similarity of petitioner’s activities in determine which ones would be most interested in his stallion. petitioner speed as a two-year-old, running undefeated in four races at sam houston that4 among the first things petitioner did was telephone thomas early, the success of choosing choice’s progeny. if some of the foals sired by choosing do not allow a postevent “ballpark guesstimate”. see goshorn v. commissioner, customs of the ltba. petitioner also called frequently to discuss ways to races. petitioner also included a letter in each breeding package that described 2011). the state’s four racetracks had recently been allowed to obtain licenses to park were connected to the thoroughbred activity, i.e., his effort to profit from the nature of his activities in louisiana. we find mr. sebastien’s testimony [*32] telephone conversations with business associates participation because petitioner performed it in his capacity as an investor in the to 20 mares for five or six consecutive breeding seasons. accordingly, petitioner’s and confer with mr. sebastien about the upcoming breeding season. commissioner of internal revenue, respondent petitioner advice and assistance as he began breeding his stallion in louisiana.13 -14- calls related to the thoroughbred activity. his cell phone records from april 23, -49- farms to meet with mr. sebastien about the upcoming breeding season. many of the activities described therein, and a significant amount of credible third- vacation” with their children in hawaii. most significantly, petitioner traveled the parties filed a stipulation of agreed issues and a supplemental2 mates with less compatible bloodlines. those who perform nicking analyses use [*18] petitioner also oversaw editing work to the video of choosing choice’s their care and to discuss the training or sales process. first, during the years at issue petitioner was eager to learn about and become activity, petitioner asserts that he satisfies the requirements for material breeding packages (the voluminous contents of which were stipulated by the and mailed promotional materials, and completed various administrative tasks. received from breeders with whom petitioner met, and petitioner’s habit of rising -45- to reflect the parties’ concessions on other issues. participation in the thoroughbred activity, the parties stipulated his performance of events he attended and had discussions with his advisers about the breeders he activities during his last two trips to louisiana in 2004 focused primarily on his participating in the activity for each of those years. see sec. 1.469-5(f)(1), income the thoroughbred activity: preparing and distributing promotional materials; choosing choice’s racing career and provided information about the stallion’s participation”, see sec. 469(l)(1), and the secretary promulgated seven regulatory them for sale. therefore, when petitioner’s foals were yearlings he arranged to awards. moreover, he could earn breeder awards if the foals of his broodmares thoroughbred horses. see la. rev. stat. ann. secs. 4:141, 4:142, 4:165 (west practice and procedure. all monetary amounts are rounded to the nearest dollar. attributable to the resulting foals. petitioner reserved at his own expense the sole11 [*8] the breeding incentive program; subject to certain legislative guidelines, it condominium involved time mr. pohoski spent on the phone with travel agents on the basis of his estimates of his participation in the thoroughbred choosing choice in favor of other stallions standing at the farm, so he soon began performing such services during such period, using contemporaneous records or bred to approximately 20 mares in 2004. july 24 july 27 choice--a task he explicitly reserved for himself in the contract with mr. the extent of an individual’s participation in an activity may be established and emphasized it in many of his communications with breeders. time he spent performing such work for each of the years at issue. he prepared the hired to train the yearling. the mare had knee problems and could no longer race, machine proceeds to supplement racing purses. see 1997 la. sess. law serv. act facilities to monitor their progress and direct their care. considering the volume28 with mr. sebastien that would be mutually beneficial if choosing choice was -13- a proven producer of capable racehorses if petitioner could breed him to at least 15 louisiana beginning in 2002. his decision was influenced by a number of him from minnesota. mr. thibodaux testified that he spoke by telephone with richard w. craigo, for petitioner. featured a breeders banquet and a charity auction of donated stallion seasons. the overview of the thoroughbred activity during the years at issue most of the $100,000 rebel stakes and was neck-and-neck on the stretch with the in addition to his telephone solicitations, petitioner designed full-page print -4- one of the three yearlings died as a result of an accident in january 2003.18 authority to discount the stud fee, and mr. sebastien exercised that authority on disallowance under sec. 469. also consistent with the uncontested testimony regarding petitioner’s in-state broodmare band of about 12 and owned the only stallion standing at their farm at that year. petitioner also visited farms in the south central area near sebastien his first racehorse, a minnesota-bred yearling (a one-year-old horse). he was petitioner and mr. sebastien subsequently reached a verbal agreement whereby time jobs unrelated to sebastien farms. they each spent approximately 25 hours promote choosing choice and then drove to sebastien farms to inspect his horses and tried to interest them in choosing choice.16 conversations with petitioner about the many farms petitioner visited, feedback he lasted a combined 173 hours. as in 2002, most of these calls were to messrs. work done by the individual in his capacity as an investor in the activity, such as * * * * * * less. new orleans, petitioner’s promotional visits were to farms near sebastien farms. through december 16, 2004, were stipulated by the parties. petitioner testified “unreasonable” for petitioner to claim that every call he made to louisiana was nov. 24 nov. 26 maintained a register of the horses involved in the program, established the -23- -12- hours of work for each day he was in louisiana and 10 hours of air travel for each conclusion credit card charges respondent identified are inconsistent with petitioner’s claim of sufficient time for meals, travel, or family leisure time, all of which we found to mr. sebastien reviewed the materials petitioner sent and was quite (feb. 25, 1988). relevant to this case, a taxpayer can meet the material connection with the thoroughbred activity under sec. 1.469-5(f)(1), income tax -46- center to discuss the progress of his yearlings and two-year-olds, and he did so were in his care. respondent’s disallowance is based solely on section 469. accordingly, we between petitioner’s trips to louisiana and the pohoskis’ two-week “working commissioner, t.c. memo. 2005-14. on the basis of his satisfaction of the more- the “louisiana horse” and “louisiana stallion register” in each of the years at and events. he also maintained consistent contact with mr. early, both on the reasonable under section 1.469-5t(f)(4), temporary income tax regs., supra, sebastien--and stallion promotion was his primary focus during the years at issue. the thoroughbred activity in 2003. respondent’s examination of his returns for those years began, but his service much of petitioner’s promotional work in minnesota was done at his law14 in maryland and virginia, before suffering a second, more serious leg injury that -33- hours of phone conversations related to the thoroughbred activity is reasonable. peripheral tasks related to the thoroughbred activity. he reviewed and paid bills, many people as possible while there. this required petitioner to travel extensively services performed over a period and the approximate number of hours spent boarding and general care, but they did not train young horses to race or prepare with messrs. thibodaux and sebastien regarding breeders they knew and tried to of each of the association’s approximately 800 members, to familiarize himself multiple daily telephone calls relating to thoroughbred activity matters, prepared employees. each year, in addition to mares owned by petitioner’s customers, [*43] management and operations of the thoroughbred activity; therefore, any travel. generally, petitioner scheduled his trips around a certain event or with a in-state, and he always rented a car upon arriving in louisiana to facilitate such thoroughbred activity. see sec. 1.469-5t(f)(2)(ii), temporary income tax regs., choosing choice and board the three mares. he first considered a number of the so petitioner moved the horse to florida in 1992 and bred it to a stallion there. may 31 june 3 weekend. while there, he twice visited the folsom training center to inspect his each year petitioner claims time for the following work done in connection with “home run” in louisiana, where a great majority of the races were six furlongs. sired any foals that were old enough to race at the beginning of 2002. second, notable races so that an improved version could be included in the breeding sebastien farms consisted of 84 acres of land on which the sebastiens kept9 stipulation of agreed issues that settle all issues in this case except the one conversations with the sebastiens which occurred throughout the years at issue. finishing third in a stakes race and winning an allowance race with a $30,000 such as phone records or other contemporaneous documentation of participation). membership consisted of approximately 800 thoroughbred horse breeders during [*2] $6,058, respectively. after concessions, the sole issue for decision is1 2 the nature and extent of the activities described in petitioner’s narrative hours each year, and that the conversations were more frequent in 2002 because -19- of the industry and its trends and generally work on a commission basis. effort to profit from breeding a stallion he owned named “choosing choice”. at front leg.6 to-five-day trips to louisiana during the years at issue. he tried to maximize the -18- yearlings; and after his yearlings were moved, he frequently called the new condition of petitioner’s horses, their care, any breeders who had shown interest in canterbury park is minnesota’s only racetrack. it is about a half-hour drive from [*45] during each of these trips he did significant promotional and managerial while in louisiana and the information provided by the cell phone records, an choosing choice without charge as well as the right to any stallion awards [*15] quoted in the print advertisements and provided in the letters accompanying stake, handicap, or allowance races. la. rev. stat. ann. sec. 4:165(a); see also trips to louisiana 290 petitioner’s first opportunity to prove his stallion because they would reach racing undertaken in his capacity as an investor in the thoroughbred activity and thus mares to choosing choice and petitioner would be more likely to earn stallion choice had had a period of racing success in the region, that was six years before cf. bartlett v. commissioner, t.c. memo. 2013-182 (credible narrative summary bred horses put on by the ltba at the fair grounds race course the second in each of 2002, 2003, and 2004; accordingly, he is treated as materially [*6] petitioner moved choosing choice to a horse farm in texas for the 2001 the most highly regarded three-year-old thoroughbreds in the country. choosing met the sebastiens, toured their farm, and negotiated the terms of his arrangement sam houston race park in texas in september 1995. he exhibited prodigious -24- find suitable places for his yearlings’ development. those yearlings represented [*30] commissioner, t.c. memo. 2013-167, at *8; bailey v. commissioner, t.c. were focused on louisiana, petitioner contacted a number of breeders in other petitioner had many questions about the breeding incentive program. by all was a secondary focus of the thoroughbred activity. the sebastiens provided tasks he completed. see sec. 1.469-5t(a)(1), temporary income tax regs., supra. activity hours claimed 721 (west); see also la. rev. stat. ann. sec. 27:361(a) and (b) (west 2011). some of the facts have been stipulated and are so found. petitioner resided renting the maui condo, and the fact that they had entered into an atypical25 may 27 may 30 took place at sebastien farms and was handled by the sebastiens and/or their with mr. sebastien, he also visited a farm in doyline (in the northwest area of the narrative summary consist primarily of calls he made to associates, advisers, and investor work he completed qualifies as participation for purposes of section 469. records adequate to substantiate the deductions. 2003, and departed from baton rouge around 8:30 a.m. on december 15. shreveport, met with a farm owner in alexandria who would care for one of his21 solicitations. he also devoted significant attention to the training of his two-20 not sufficient to establish material participation absent corroborating evidence petitioner participated in the thoroughbred activity for more than 500 hours in -2- packages marketing choosing choice”. sebastien, thibodaux, and early and numerous breeders whom petitioner solicited well-known farms near new orleans but was deterred by the rates they charged to because those flights represented petitioner’s “commuting” between his personal year, including the houston juvenile stakes.5 petitioner contends that he participated in the thoroughbred activity for 891 hours estimate. ultimately, in view of the evidence, an estimate of approximately 300 petitioner traveled to louisiana again in late july. at sebastien farms, he choice became accomplished racehorses, more breeders would pay to breed their commissioner, t.c. memo. 1998-17. have them moved to facilities that specialized in such things. he consulted with upcoming breeding season. [*3] background -11- respondent nevertheless argues that a great deal of the work upon which yearlings. similarly, the owner of the folsom training center testified that he to introduce himself and inquire generally about thoroughbred breeding in mr. pohoski’s testimony. nonetheless, we found that the taxpayers materially

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