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Petitioners did not have a retirement plan. During the
years in issue, petitioners placed approximately $6,000 into an
IRA account.
In 1985, Mr. Morley met Ed Horton (Mr. Horton). Mr. Horton
and his wife owned a horse farm. Mr. Horton had been in the
horse-breeding business for many years, and he had an impressive
reputation regarding his knowledge of horse business operations
and the area horse market.
During 1985, Mr. Horton convinced Mr. Morley that there was
great potential for profit in breeding and selling Arabian
horses. Mr. Horton showed Mr. Morley how to use Arabian horses
to provide a retirement plan.2
Mr. Horton assisted Mr. Morley's entry into breeding and
selling Arabian horses (the horse-breeding activity). From the
inception of the horse-breeding activity, Mr. Morley consulted
with other horse breeders and read journal articles about horse
breeding. He attended seminars, took courses, and purchased
video tapes on breeding Arabian horses and horse farm management.
Mr. Morley also did a break-even analysis at the inception of his
horse-breeding activity.
In June 1985, Mr. Morley acquired a 34-acre farm (the farm)
located approximately 6 miles from petitioners' residence. Mr.
Morley conducted the horse-breeding activity on the farm.
2 Prior to 1985, Mr. Morley had no knowledge of breeding
Arabian horses.
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