Harvey J. Davis and Patricia A. Davis - Page 23

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          Petitioners owned broodmares Brigitta La Brisa and Vendalita and            
          expected them to produce foals.  Thus, they reasonably expected             
          that owning Brigitta La Brisa and Vendalita would lead to their             
          owning foals.                                                               
               Respondent also contends that petitioners should not include           
          the value of HB Canadian Dsign, a horse they bought in 1997, in             
          their estimate of appreciation from their horses in the years in            
          issue.  Respondent further contends that petitioners failed to              
          include the foal rights from Brigitta La Brisa, Vendalita, and              
          That’s Amore in their acquisition costs for those horses and that           
          the value of the foal rights reduces petitioners’ anticipated               
          appreciation.  We agree with respondent on both of these points,            
          and we have corrected for it in our analysis.                               
               Petitioners’ horses had appreciated by $107,800 as of their            
          1998 appraisal.  This generally corroborates petitioners’                   
          expectation before and during the years in issue that the value             
          of petitioners’ horses would increase substantially.                        
                    b.   Appreciation in Petitioners’ Residence and Farm              
               Petitioners contend that we should consider appreciation in            
          their farm property in applying this factor.                                
               Truitt estimated that petitioners’ farm improvements (i.e.,            
          the barn, stable, and arena) as of December 21, 1998, were worth            
          $47,000.  Petitioners’ cost of the improvements was about                   
          $23,000.  Thus, Truitt’s testimony supports a finding that                  

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