S.K. Johnston, III and Julie N. Boyle f.k.a. Julie N. Johnston, et al. - Page 7

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            the farm's staff to develop a business plan for the farm.                                 
            Petitioner regularly interacted with Dr. Haaland on the Bendabout                         
            business plans and has followed Dr. Haaland's recommendations.                            
                  In 1990, after submitting numerous drafts to petitioner and                         
            following several years of on-site work, Dr. Haaland completed                            
            the business plan for Bendabout.  The purpose of the plan was to                          
            refine objectives and strategies to improve the income potential                          
            of the farm.  It analyzed the horse boarding operation, described                         
            the businesslike manner in which the operation was then being                             
            conducted, and concluded that more aggressive marketing should be                         
            implemented to increase the projected profit by 10 percent per                            
            year.                                                                                     
                  During the years in issue, Dr. Haaland traveled frequently                          
            to Flying H.  He spent time there during the various seasons in                           
            an effort to appreciate the property's multi-seasonal use                                 
            potential.  Dr. Haaland and Archie MacCarty (MacCarty), the                               
            manager of Flying H worked closely to develop a business plan for                         
            the ranch.                                                                                
            Issue 1. Whether Petitioners' Farming Activity Known as Bendabout                         
            Farm was an Activity Engaged in For Profit                                                
                  Bendabout Farm                                                                      
                  During the years in issue Bendabout Farm consisted of                               
            approximately 2,000 acres, most of which was utilized as follows:                         
                        Alfalfa/rye                               32 acres                            
                        Corn                                      62 acres                            
                        Cattle                              215 acres                                 
                        Horse boarding          191 acres                                             



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