James C. Vallette and Arleen R. Vallette - Page 2

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          stated, section references are to the Internal Revenue Code in              
          effect for the years in issue.  Rule references are to the Tax              
          Court Rules of Practice and Procedure.  Dollar amounts are                  
          rounded to the nearest dollar.  James C. Vallette and Arleen R.             
          Vallette are referred to as Mr. Vallette and Mrs. Vallette,                 
                                  FINDINGS OF FACT                                    
               Some of the facts have been stipulated and are so found.               
          These facts and the exhibits submitted therewith are incorporated           
          herein by this reference.  Petitioners resided in Sulphur,                  
          Louisiana, when they petitioned the Court.  They filed 1989 and             
          1990 Forms 1040, U.S. Individual Income Tax Return, using the               
          filing status of “Married filing joint return”.  Losses from a              
          self-owned cattle breeding activity were reported on petitioners'           
          1989 and 1990 Schedules F, Farm Income and Expenses.                        
               In 1979, petitioners began their breeding activity under the           
          name Vallette Farm, at a site located approximately 1 to 2 miles            
          from their home.1  They bred heifers with bulls to produce calves           
          (a “cow-calf operation”).  They sold the bull calves at market,             
          and they either sold the heifer calves at market or retained the            
          heifer calves for future breeding.  Before 1979, petitioners had            
          never owned or operated a cattle breeding business.  Petitioners            

               1 During the subject years, this site included 800 acres of            
          land.  Petitioners owned 110 acres of this land, and they leased            
          the remaining acreage on a yearly basis.  Petitioners never                 
          improved any of the leased land.                                            

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