Eugene J. Phillips and Barbara A. Phillips - Page 9

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               Petitioners' Virginia farm and land, purchased in 1988 for             
          $90,000, were appraised during 1995 at a fair market value of               
          $155,000.  Petitioners' 8 registered quarter horses were                    
          appraised during 1995 at a total fair market value of $10,000.              
          Petitioners' 22 registered Arabian horses were appraised during             
          1995 at a total fair market value of between $86,000 and $96,000.           
          Petitioners own 6 horses which were not appraised because they              
          are half Arabian/half quarter horse, and petitioners thought that           
          they were not worth insuring.                                               


               During the years in issue, petitioners incurred losses on              
          their horse activity as follows:                                            
                    Income    Depreciation   Other Expenses Income/(Loss)             
          1991      $114        ( $6,274)    ( $56,874)     ( $63,034)                
          1992      -         (  7,756)      (  61,235)     (  68,991)                
          1993      -          (  7,697)       (  54,513)    (  62,210)               
                    $114      ($21,727)         ($172,622)  ($194,235)                
          During the years in issue, petitioners received income from Mr.             
          Phillips' military retirement pay and other sources, as follows:            
                    Wages      Retirement Pay     Interest & Dividends     Total      
          1991      $74,246   $25,464        $21           $99,731                    
          1992       87,432   26,384         125            113,941                   
          1993      89,271    27,180         129            116,580                   
          Losses sustained by petitioners were out-of-pocket economic                 
          losses with the exception of amounts deducted for depreciation.             
               Since 1988, Mr. Phillips inherited approximately $25,000 to            
          $30,000, all of which petitioners invested in their horse                   






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