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barn, and several pastures for raising and training the horses.
Petitioner performed most of the work on the ranch. In 1992
and 1993, petitioner spent a considerable amount of time
renovating the ranch. Daily activities on the ranch included
weed control of the pasture, hauling hay, repairs of the stalls
or fences, and other general maintenance work. In addition to
the daily chores, petitioner spent time breaking and training
young horses on the ranch. During the breeding season,
petitioner's main activity was encouraging "live cover" of the
horses by leading the stallion to the mare. When petitioner was
away on flights for American Airlines, a laborer would come in to
feed the horses and clean the stalls.
Petitioner sold one horse in 1992 and none in 1993.
Petitioner showed his horses in cutting horse competitions;
however, he never received any monetary awards from these
competitions.
Petitioner maintained inadequate records of the horse
breeding activity. Petitioner did not record information about
the purchases or sales of his horses. Petitioner did not make
written forecasts or projections of future income. Additionally,
petitioner has never kept a separate checking account or other
bank account for the horse breeding activity. Prior to 1995,
petitioner did not advertise the horse breeding activity.
The horse breeding activity never showed a profit.
Petitioner reported gross sales from this activity in the amounts
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