The second criteria used by the IRS to determine if you have a business are The Expertise of the Taxpayer or His Advisors. I have a PhD in Animal Nutrition with emphasis in horse research. So for me it is easy to defend my expertise in horse knowledge. However, I am not an accountant so I use the expertise of my tax accountant, who is knowledgeable about horse businesses. No one knows everything about a business. Therefore one should strive to learn! For your business did you consult with experts in the field or what is your knowledge in the field? Did you consult with professional breeders or trainers to start your business? Did you work in a tack shop followed by opening one of your own? Did you attend farrier school? Even if you have been in the business for years continuing to engage with professionals to learn is a plus in terms of the IRS. This means attending courses on aspects of the horse industry. Another area they will take into consideration is any magazines you subscribe to or books you read. Keep accurate notes and/or documentation on programs you attend and printed material you use to learn more about the horse industry. It is not only the horse industry to learn about; how to run a business is important. How do you evaluate the profit margin of your business? Have you sought advice from experts on profits, expenses, cash flow projects etc.? Do you evaluate your business and make necessary changes to make it more profitable? I use Quicken and Excel to keep tract of my income and expenses. I can easily show what items cost and what income I obtain from the business. Next what are your bloodlines and the potential of that bloodline in the industry? When we were audited, Rich, my husband went through each horse’s pedigree and discussed the horse’s purpose in the business. Finally if you use consultants did you make changes based on their advice, are these changes implemented or ignored?