James C. and Vivian C. Dodge - Page 4

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               In 1982, petitioners purchased 14 acres of land                        
          approximately 1 mile from their home for $13,000 with the                   
          intention of building a horse farm.  Petitioners cleared the land           
          of trees and constructed a nine-horse barn, sheds, fences, a                
          driveway, and a well at a total cost of $59,500.  In 1992 the               
          farmland and improvements were appraised at $121,000.                       
               Petitioners began their horse activity during 1983 and                 
          decided to specialize in the breeding and selling of Arabian                
          horses.  At that time, petitioners owned an Arabian horse,                  
          Homestead Wiraza, which they had purchased in 1981 for $3,500.              
          Mr. Dodge joined several horse associations and attended clinics            
          and seminars to learn how to show, train, breed, and sell horses.           
          He also paid several thousand dollars for professional horse                
          trainers.  Petitioners did not, however, consult with any horse             
          breeders about the best way to minimize expenses and/or run a               
          profitable horse farm, nor did they follow Mr. Tischer's advice             
          to prepare a long-term plan for the horse farm.                             
               In 1983, petitioners purchased Canadian Fury for $30,000.              
          Canadian Fury and Homestead Wiraza were the only broodmares used            
          in petitioners' horse-breeding activity.  Petitioners did not               
          maintain a stallion for breeding purposes; instead they paid stud           
          fees to outside breeders.  From 1983 through 1996, Canadian Fury            
          and Homestead Wiraza produced eight foals.  No foals were born              







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