Joseph E. Machado - Page 5

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               Petitioners spent only a few hours a day 3 or 4 days a week            
          working on their horse breeding and horse racing activities.                
          Petitioners would talk to trainers regarding their racehorses,              
          determine in which races their horses would run, select the                 
          stallions with which to breed their broodmares, and arrange for             
          veterinary care for their horses.                                           
               For 1980 through 1984, the record does not indicate how many           
          foals were produced in petitioners' horse breeding activity.  In            
          1982 and 1984, petitioners spent approximately $630 and $380,               
          respectively, in advertising for sale foals that their broodmares           
          had produced.  Petitioners did not advertise the sale of their              
          horses in any other year.                                                   
               From 1980 through 1984, petitioners did not sell any foals             
          produced from their broodmares, and petitioners realized no                 
          income from their horse breeding activity.                                  
               With respect to the horse racing activity, from 1980 through           
          1984, petitioners' horses ran in 118 races in California, and               
          petitioners' horses placed first in 19 of the races.  The record            
          does not indicate the number of times petitioners' horses placed            
          second or third.                                                            
               From 1980 through 1984, petitioners won total prize money              
          from their horse racing activity of approximately $133,542, but,            
          after expenses, petitioners realized total combined net losses              
          from their horse breeding and horse racing activities of                    
          approximately $613,538.                                                     




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