Dana L. McNaught - Page 5




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               Petitioner has never owned a farm or other real estate.  She           
          boards her broodmares and foals at several locations in Oregon              
          and one location in Arizona.3  Petitioner decides which stallions           
          will breed with her broodmares.  She chooses trainers for her               
          foals by matching each foal's heritage and aptitude to the                  
          trainers' expertise.                                                        
               Petitioner budgets 30 hours per week for her Appaloosa                 
          breeding and selling activity and admits that it consumes nearly            
          all of her personal time.  She maintains complete records of her            
          expenses in a single entry ledger and places all of her receipts            
          in envelopes categorized by type of expense.  The amounts claimed           
          on her returns were derived directly from these records.                    
               Petitioner has a separate bank account for her horse                   
          breeding and selling activity.  The account is in petitioner's              
          name at a bank other than the bank at which she maintains her               
          personal account.  Petitioner's broodmares are insured.                     
               Although she has enjoyed some success in breeding and                  
          selling Appaloosas, petitioner has never realized a profit during           
          any taxable year.  She attributes this lack of any profits to               
          problems of the National Appaloosa Horse Club during the 1980's             
          and more recent setbacks with her own broodmares.  Petitioner               
          does not ride Appaloosas for recreational purposes.                         
               On Schedules C attached to her 1994, 1995, and 1996 Federal            
          income tax returns, petitioner reported the following amounts:              

          3         One of petitioner's trainers, Rusty Hadden, testified             
          that one of the benefits of training horses in Arizona is the               
          opportunity to show the horses throughout the year.                         

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