As a result of bitter divorce, Simone de Beauvoir found herself with no visible means of support. Drawing on her talents as an equestrian, she established a business (LLC) that integrated activities with a home and barn design activity.

Simone was an accomplished equestrian and competed frequently and successfully in horse shows. These shows enables her to be recognized in the equestrian community as a skilled competitor and to make connections with potential clients. Because she believed that direct contact and satisfied clients provided the necessary marketing for her business, she chose not to advertise in trade publications. All of her client relationships were developed in this manner.

Simone's barn designs factored in her knowledge of the idiosyncrasies of each of her client's horses. Because her clients are wealthy horse people. the interior design of a client's home often required knowledge related to horses.

During a seven-year period, her equestrian activity produced annual losses, while the design activity produced profits. The loss of the equestrian activity would have been larger except for a recognized gain on the sale of one of her horses. Together, the two activities produced substantial profits in six of the seven years. For the loss year, the amount of the loss was small.

Simone reported the revenues and expenses of the two activities on a single Schedule C. an IRS agent contends that the activities are separate. Although the horse barn and home design activity is a trade or business. the equestrian activity is a hobby. Thus, the losses from the equestrian activity cannot be used to offset the gains for the design activity. Simone disagrees.

Simone de Beauvoir has come to you for advice. Which position is correct? Is the equestrian activity a business?