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her various calves to manage and sell. At age 16, she left her
father’s Texas ranch and used the proceeds from the sale of her
calves for her college and medical school education.
In late 1976, after serving in the U.S. Army, petitioners
settled in Nacogdoches, Texas. Subsequent to arriving in
Nacogdoches, petitioners purchased three ranches and one farm.
Melrose Ranch
In 1978, petitioners purchased 80 acres of land situated 6
miles east of Nacogdoches, Texas (Melrose ranch), for $105,000.
The Melrose ranch sits adjacent to petitioners’ current residence
near Nacogdoches, Texas. During the years in issue, petitioners
rented out their current residence. Because of the Melrose
ranch’s small size, petitioners could not effectively conduct a
ranching or farming operation on it. During the taxable years in
issue, petitioners did not maintain any cattle on the Melrose
ranch.
Chireno Ranch
In 1979, petitioners purchased 510 acres of land in Chireno,
Texas (Chireno ranch), which is 25 miles east of Nacogdoches, for
$325,000. When petitioners purchased the Chireno ranch, the
ranch contained minimal improvements. Petitioners constructed
additional cattle pens, a pole barn, and a small metal shed. In
1992, petitioners built a one-vehicle bridge over a canal on the
Chireno ranch.
Initially, petitioners, together with Mr. Jorgenson’s
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