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solicited potential automobile customers. These independent
contractors were paid a fee or a commission if a referred
individual purchased a vehicle from Toyota West. Petitioner did
not earn commissions from this program. He was paid a salary by
Toyota West.4 Sometime in early 1997, an undescribed financial
irregularity developed or was discovered in the program
petitioner administered, and he was terminated by Toyota West.
All of his records, including some personal records, were
confiscated and never returned to him. Petitioner thereafter
became a newspaper distributor.
During 1995, petitioner began breeding paint horses. These
horses are used for show purposes. Petitioner was a member of
the American Paint Horse Association. Petitioner had no
expertise in raising horses except that he was raised on a farm
and had some experience in breaking horses. Petitioner purchased
his first horse in October 1995 and later acquired other horses.
In 1996, the year at issue, petitioner had five horses, one of
which was a stud and four were brood mares. The horses were
located on a farm away from his home. Petitioner paid $120 per
month for boarding each horse. The owner of the stable also
trained horses, and the fee for that was $400 per month per
4 Petitioner and his wife reported wages and salary
income of $126,399 on their 1996 Federal income tax return, of
which $99,450 represented petitioner's wages from Toyota West.
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