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I. Components of Personal Pleasure or Recreation The presence of personal motives in transporting on an activity may show that the activity is not involved in for profit, especially where there are recreational or personal elements involved. Sec. 1.183-2(b)(9), Income Tax Regs. Although horse mating may involve elements of enjoyment and Mrs. Pederson testified that some areas of their participation in the breeding activity were “fun”, we do not believe that petitioners were motivated by the recreational elements significantly.

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Petitioners didn’t have a great deal of connection with their foals and delegated essentially all the breeding work to ClassicStar. We find this factor favors petitioners. While no known facts regarding the profitability of these additional horse breeding activities were introduced, we find petitioners’ continued involvement in horse breeding activities supports their position. 6662(a) and (b)(2) for considerable understatements of income tax.

32 Respondent decided that these penalties should apply for 1997, 1998, 1999, 2000, 2002, 2003, and 2004. Petitioners contest the imposition of accuracy-related penalties. See Higbee v. Commissioner, 116 T.C. Certain special rules regarding significant understatement of income tax apply in the case of NOL carrybacks. 5,000 as the total result of deductions claimed for equine breeding expenses.

However, petitioners claim that that they had substantial power and an acceptable basis for the taxes treatment of the trouble deductions, no understatement of tax therefore. See sec. 6662(d)(2)(B). We disagree. There is certainly substantial expert for the taxes treatment of something only if the weight of all relevant authorities helping the treatment is substantial with regards to the weight of specialists supporting contrary treatment. Sec. 1.6662-4(d)(3)(i), TAX Regs.

The substantial specialist standard can be an objective standard less stringent than the more-likely-than-not standard. Sec. 1.6662-4(d)(2), Income Tax Regs. Reasonable basis is a relatively high standard of taxes reporting that is significantly greater than not frivolous or not patently improper, but less strict than the substantial power standard. Secs. 1.6662-3(b)(3), 1.6662-4(d)(2), TAX Regs.

“The reasonable basis standard is not satisfied by a return position that is only arguable or that is only a colorable state.” Sec. 1.6662-3(b)(3), Income Tax Regs. Sanders v. Commissioner, T.C. Filios v. Commissioner , T.C. Lundquist v. Commissioner , T.C. Taking into consideration the known facts of this case, we believe that it is clear that petitioners did not have an actual and honest income objective in engaging in the horse mating activities and therefore failed to fulfill the section 183 for-profit necessity.

As an outcome, we find that petitioners did not have substantial expert or an acceptable basis for the tax treatment of items related to their horse mating activities which no decrease in the understatement of income tax should result. Reasonable cause requires that the taxpayer have exercised common business care and prudence regarding the disputed item. See USA v. Boyle, 469 U.S. Estate of Young v. Commissioner, 110 T.C.