Here’s another horse hobby loss case for my former colleague Peter Reilly, CPA. Keith Schumacher and Rhonda Schumacher, T. C. Memo. 2026-47, filed 6/9/26, are long-time horse breeders and collectors of performance points and lariat points. They ran SQH, their horsebreeding business, since 2001 without making a single year’s profit therefrom.

Judge Elizabeth A. (“Tex”) Copeland barrel-races through the nine (count ’em, nine) factors of the “goofy” regulation, Reg. Section 1.183-2(b), giving six (count ’em, six) to IRS, two (count ’em, two) to the Schumachers, and one neutral.

While I’ve often touted maintaining a separate checking account for side hustles to show businesslike operation, even a separate checking account for SQH (with the same bank as their personal account) doesn’t save the Schumachers.

“Although the Schumachers maintained a separate checking account for SQH, in practice the SQH account functioned as an extension of their personal checking account. Many horse-related expenses were paid from their personal checking account. When the SQH account ran dry, the Schumachers ponied up to replenish it from their personal checking account. These practices are inconsistent with maintaining accurate books and records. It is also telling that [trusty EA preparer] relied heavily on the Schumachers’ handwritten notes and statements by Dr. Schumacher rather than SQH business account bank statements when preparing their returns.” T. C. Memo. 2026-47, at p. 10.

But the Schumachers escape the five-and-ten chops because trusty EA preparer never warned them about the goofy regulation’s pitfalls or the horsebreeding Section 183(d) safe harbor, accepted their handwritten notes and never checked the bank statements, and neither Schumacher had any tax exposure or expertise.

Taishoff says note that trusty EA preparer also did the accounting work for Doc Keith’s heavy-duty veterinarian practice, T. C. Memo. 2026-47, at p. 7. I’ve noted that when one provides professional services both to a substantial business client and to one of its top brass personally, one is hesitant to pass personal-side bad news to brasshat, lest brasshat seek a more sympathetic and flexible pro, taking the substantial client with her/him. Just sayin’.