Case Facts

Randy Miller is very successful in the business of retailing soft drinks and makes good profit from the business.

Randy also raises dogs and horses. He began raising a particular breed of dogs many years ago in the belief that the breed was in danger of declining, and he has raised and sold the dogs in each year since. The taxpayer recently began raising and racing thoroughbred horses.

The losses from the taxpayer's dog and horse activities have increased in magnitude over the years, and he has not made a profit on these operations during any of the last 15 years. The taxpayer generally sells the dogs only to friends, does not advertise the dogs for sale, andshows the dogs only infrequently. The taxpayer races his horses only at the "prestige" tracks atwhich he combines his racing activities with social and recreational activities. The horse and dog operations are conducted at a large residential property on which the taxpayer also lives, which includes substantial living quarters and attractive recreational facilities for the taxpayer and his family.

On his federal income tax return, Randy wants to deduct the losses he has made in dog and horse raising from the profits he has made from retailing soft drinks.

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