Kenneth E. Perry and Mary A. Hofer - Page 5

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                       Year    Mr. Perry   Ms. Hofer     Total                        
                       1986     $56,140     $40,608     $96,748                       
                       1987     52,014      39,910      91,924                        
                       1988     52,485      43,064      95,549                        
                       1989     55,167      43,358      98,525                        
                       1990     61,487      45,562      107,049                       
                       1991     56,905      48,653      105,558                       

             Mr. Perry retired from General Motors in 1995.  At the                   
             time of trial, Ms. Hofer was on dependent care leave and                 
             did not wish to return to work.                                          
                  At the time they were married, petitioners planned                  
             to acquire a farm and raise horses.  Before implementing                 
             this plan, petitioners had at least one conversation with                
             Mr. John Adkins, who had extensive experience breeding                   
             Tennessee Walking Horses.  Based on their discussions with               
             Mr. Adkins and their prior experience, petitioners decided               
             to acquire and develop a breeding stock of registered                    
             Tennessee Walking Horses.  Petitioners knew that the                     
             undertaking would require a substantial outlay of cash and               
             that there was a significant likelihood of losses during                 
             the early stages.  However, petitioners did not have a                   
             formal business plan or income projection at the time they               
             began the undertaking.  Petitioners believed that they                   
             could create a self-sustaining breeding operation by                     
             acquiring and developing sufficient real estate, planting                
             appropriate crops, and acquiring attractive horses.  At the              
             time they began their horse-related operation, petitioners               




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