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because it had big new barns, more horses, more stallions, and 30
or more horses being trained for clients.
2. Petitioners’ Plans and Preparation
When they started their horse activity, petitioners chose
McDannald to advise them on the training, breeding, and showing
of their horses. McDannald advised petitioners sometime after
they started their horse activity that they did not need to buy
more land for it. He told them they should buy hay to feed their
horses rather than land on which to grow it.
In 1990, petitioners did not visit or know anyone with an
Arabian horse farm which was comparable to their own horse
activity. The McDannald Arabian horse farm was much larger and
not comparable to petitioners’ horse activity because McDannald
trained horses but petitioners did not. Petitioners did not
review the financial records of any Arabian horse operators
before starting their own Arabian show horse activity in 1990.
Petitioners began to operate their horse activity in 1990.
In 1990, petitioner drafted a business plan for 1991 to 1997 for
petitioners’ horse activity. Petitioners’ business plan for the
years in issue was to buy inexpensive horses and to try to
increase their value by training and showing them.
The plan analyzed costs to raise and train a horse.
Petitioner estimated that it would cost $6,545 plus labor to
breed and raise an Arabian colt for 3 years. However, petitioner
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Last modified: May 25, 2011