James C. Vallette and Arleen R. Vallette - Page 3

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          started breeding cattle in 1979, after they began receiving                 
          substantial royalties from an oil well that was drilled on their            
          land.  On their 1979 through 1994 Forms 1040, petitioners                   
          reported the following amounts from cattle breeding and oil:                
                        Cattle breeding                                               
                                                            Net royalties             
          Year      Income    Expenses1      Net Loss       from oil                  
          1979      $2,690    $15,299        $12,609        $157,789                  
          1980      3,862     68,964         65,102            172,379                
          1981      21,606    85,028         63,422         198,030                   
          1982      9,562     70,297         60,735         226,610                   
          1983      4,570     89,696         85,126         167,465                   
          1984      12,020    108,025        96,005         190,019                   
          1985      7,522     93,003         85,481         159,237                   
          1986      13,984    80,162         66,178         100,317                   
          1987      21,891    95,901         74,010         112,640                   
          1988      5,135     93,455         88,320         142,692                   
          1989      4,234     64,955         60,721         69,933                    
          1990      - 0 -     67,998         67,998         72,048                    
          1991      49,320    77,835         28,515         123,622                   
          1992      13,550    90,689         77,139         114,921                   
          1993      46,933    87,673         40,740         97,876                    
          1994      36,053     67,698      31,645             49,011                  
          Total  252,932  1,256,678    1,003,746         2,154,589                    
               1Petitioners' largest single expense was depreciation.                 
               During the subject years, petitioners’ involvement in their            
          breeding activity included worming and feeding the cattle,                  
          delivering calves, planting grass for the cattle, and maintaining           
          fences.  Besides petitioners, the primary individuals who worked            
          in the breeding activity were petitioners’ two sons, Matthew and            
          Stephen, and their son-in-law, Kim Little.  None of these helpers           
          received any compensation from petitioners for their help.  All             
          of these helpers worked full-time for other employers.  Stephen             
          and Kim also owned and operated other farms.                                




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