John Franklin Foust - Page 4

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          crop-share arrangement, 804 acres of farmland owned by Mesa Corp.           
          (Mesa), an S corporation whose shares were owned by Mrs. Foust.             
          Mrs. Foust obtained her shares of Mesa from petitioner without              
          consideration.  Mesa’s Form 1120S for 1989 reported $60,000 of              
          rental income, expenses of $46,171, consisting primarily of                 
          depreciation and interest, and taxable income of $13,829.                   
               On March 6, 1986, petitioner purchased a 160-acre farm in              
          Lucas County, Iowa.  On the same date, petitioner and Mrs. Foust            
          conveyed this farm to Teton Corp. (Teton), an S corporation                 
          whose shares were beneficially owned by petitioner’s minor                  
          children, Brian John Foust and Michael Franklin Foust.  Cheyenne            
          began farming Teton’s land in addition to Mesa’s land.  Teton’s             
          Form 1120S for 1989 reported the receipt of rental income of                
          $52,200 and taxable income of $31,754.                                      
               Mrs. Foust also owns the shares of Iowa Prairie Corp. (Iowa            
          Prairie), an S corporation engaged in the manufacture of small              
          wooden “miniatures” that were sold in craft stores.  During the             
          year in issue, Iowa Prairie neither conducted any farming                   
          activities nor owned or leased any farm land.  There were no                
          written rental agreements among or between petitioner, Cheyenne,            
          Iowa Prairie, Teton, or Mesa.  Petitioner did not engage in any             
          farming activities in 1989.                                                 

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