-40-
2. Herd Expansion and Pollution Control
Respondent has the burden of proof on these issues for 1987
and 1988, and to the extent of $550,000 for pollution control for
1989; petitioner has the burden of proof for amounts above
$550,000 for 1989. Gustafson's Dairy, Inc. v. Commissioner, T.C.
Memo. 1995-11.
a. Herd Expansion
Petitioner claims that it needed to accumulate $1,425,000 in
fiscal year 1987, $1,575,000 in fiscal year 1988, and $1,575,000
in fiscal year 1989 to replenish and enlarge the dairy herd.
Respondent argues that petitioner had no definite plans to
enlarge the herd because the CEP contained no projections in
category one for herd expansion for the years in issue.
Respondent points out that petitioner's herd decreased from 7,585
cows in 1983 to 5,725 cows in 1989. Respondent argues that the
fact that petitioner's herd decreased before and during the years
in issue and the fact that petitioner never implemented its plan
to enlarge its herd shows that petitioner's accumulation for this
purpose was not reasonable. Respondent contends that petitioner,
and not the SCS, chose the 5,500 cow limit. We disagree.
Petitioner listed in the CEP for fiscal years 1986 through
1989 that it projected to accumulate amounts for herd expansion
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