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Petitioners also reported consulting income on line 23 of Forms
1040 for 1991 and 1992 in the amounts of $2,481 and $1,162.
In 1985, petitioners bought a horse as a gift for their
daughter. Prior to purchasing the horse, petitioners attended a
6- to 8-week course on equine care and maintenance. While
attending the class, they met Dr. Keith Lane, who introduced
petitioners to the Paso Fino, a breed of horse possessing a
smooth gait and agreeable disposition.
In 1988, petitioners decided to breed Paso Fino horses and
commenced operating the Silk Oak Paso Fino Ranch (Silk Oak).
Petitioners established Silk Oak on 4.84 acres of property where
their personal residence was located. Petitioners had acquired
the land for $47,500 in 1985 and constructed a residence at a
cost of $113,000 in the same year. The parties agree that, at
the time of trial, the fair market value of the property was
$295,000.2
Before beginning the operation of Silk Oak, petitioners met
with several successful breeders of Paso Fino horses, who
convinced petitioners that they could profitably run a Paso Fino
ranch. Petitioners were advised on such topics as basic horse
care, showing, advertising, cost control, and breeding.
2 Cliff Hathaway, an appraiser hired by petitioners,
determined the value of the property by comparing the sale prices
of similar personal residences recently sold in the area.
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