Midwest Industrial Supply, Inc. - Page 3

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          Trakehner horses.  Around 1980, he sold Highspring Farm and began to board his
          horses with a fee-for-service operation in Nashville, Ohio.  The boarding   
          facility took care of feeding the horses, but Mr. Vitale continued to breed 
          them.                                                                       
               On March 1, 1982, Mr. Vitale, acting in his capacity as petitioner's   
          sole director, adopted a resolution authorizing petitioner to provide       
          "sponsorship and advertising funds" to underwrite the costs of Mr. Vitale's 
          equestrian activities.  The resolution provided in relevant part:           
               WHEREAS, Highspring Farm's name is to be changed and its               
               activities are hereby transferred to Sussex Farm * * * in the          
               hope that horses would be produced as a result of Sussex Farm's        
               breeding operation which would achieve a national or world class       
               level of performance under the name or names of the                    
               Corporation's products, such as Ice Free Nogarro, Ice Free             
               Nobella, and Ice Free Czest, highlighting MIDWEST INDUSTRIAL           
               SUPPLY, INC.'S winter line products under the trade names of Ice       
               Free Conveyor, Ice Free Switch, etc., which is on a par with the       
               finest products available,                                             
                   *        *        *        *        *        *        *            
               IT IS HEREBY RESOLVED that in order for a corporate product            
               line to be able to acquire the prestige associated with                
               dressage, 3-Day, and show jumping and its current sponsors, the        
               Corporation is authorized to provide the funds to acquire and/or       
               breed horses in reasonable amounts necessary to support Sussex         
               Farm, and further, Robert W. Vitale, as President, is hereby           
               authorized to enter into contracts and leases and take other           
               actions on behalf of the Corporation, to obtain the necessary          
               facilities, horses, property, equipment and supplies to maintain       
               Sussex Farm.                                                           
               Notwithstanding this 1982 resolution, petitioner did not begin to      
          sponsor Sussex Farm until 1986.  In addition, the horses ultimately competed
          under such names as Nogarro and Czropa rather than "under the name or names of
          the Corporation's products".                                                
               During the 1986-89 period, Mr. Vitale's individual income tax returns  
          included Schedule F, "Profit or Loss From Farming", which reported the income
          and expenses relating to his equestrian activities conducted under the name 
          "Sussex Farm".  Sussex Farm was not a farm but simply the name that Mr. Vitale
          used to conduct his equestrian activities.                                  






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