Dean L. and Cynthia D. Sanders - Page 8




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          Quarter Horses; Cutting Horses                                              
               A cutting horse is a quarter horse that is trained to work             
          with cattle.  Cutting horses and their riders compete in                    
          competitions for which prize money is awarded.  Quarter horses              
          may be bred and their offspring sold.  Stallions may be stood and           
          a stud fee charged.  Fees may be charged for training quarter               
          horses to be cutting horses.  Petitioner bred no horses at the              
          Arkansas ranch.  From 1986 through 1995 petitioners reported no             
          stud fees on their income tax returns.  During 1992 and 1993,               
          petitioner employed Scott Brewer (Brewer) as a trainer.                     
          Petitioner assisted with the training and performed some manual             
          labor on the Arkansas ranch.  During 1992, petitioner allowed               
          Brewer to train outside horses on the Arkansas ranch.  Petitioner           
          billed for that service but kept only $150 out of $6,142 billed,            
          the remainder going to Brewer.  Petitioners reported no income              
          from training for 1993.                                                     
          Competitions                                                                
               During 1992 and 1993, Brewer rode as a professional on                 
          petitioner’s horses at cutting horse competitions.  Petitioner              
          paid him 50 percent of his winnings net of entry fees.  During              
          those years, petitioner rode in such competitions as an amateur             
          or nonprofessional.  In those categories, petitioner also could             
          earn prize money.  Petitioner has competed in all the major                 







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