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Initially, petitioner did most of the chores around the North
Ranch. As their operations grew, petitioners hired contract labor.
In addition, during the years in issue, two employees of United
(Jerry Scott and Perfecto Delgado) worked as caretakers on both
ranches. Although paid by United, petitioners claimed Messrs.
Scott’s and Delgado’s salaries as Schedule F expenses.
From the inception of their cattle-raising operations,
petitioners’ Schedule F expenses exceeded income; this result is
expected to continue for the foreseeable future. (Petitioners
incur a net loss of approximately $11.85 for every head of cattle
sold.) Petitioners attribute these continued losses to fluctuating
cattle and feed prices due in large part to increased competition
in the industry as well as a prolonged drought.4
Deer Operations
In 1988, petitioner decided to raise and manage deer so that
he could eventually develop a herd suitable for trophy game
hunting. For this purpose, petitioners acquired the South Ranch
and enclosed the property with deer-proof fencing. In addition,
petitioners installed a water and feed system across the South
Ranch in order to ensure a constant supply of food for the deer.
Although petitioner had an extensive knowledge of deer from
previous hunting trips, he sought advice from the Texas Parks and
4 We note that during 1992 through 1994, prolonged
drought conditions did not exist in the areas surrounding the
North and South Ranches.
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