Louis J. Novak - Page 8




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               The average commission a seller pays on the sale of a horse            
          is 10 to 15 percent of the sales price.  Petitioner paid                    
          commissions of 10 to 15 percent to persons other than Mr. Dahart.           
          Nevertheless, petitioner paid commissions to Mr. Dahart that were           
          as high as 50 percent.  Petitioner provided no explanation for              
          the above-average commissions paid to Mr. Dahart.  Petitioner               
          paid Mr. Dahart commissions6 on the following sales:                        
          Year of                            Sales     Percentage of                  
          Sale         Horse                PriceCommission        Sales Price          
          1990     Dance with Fire         $3,000            $1,27542.5%                     
          1992     Pro Gato    47,500            119,000    40.0%                     
          1992     La Quintina              2,000             1,00050.0%                     
          1992     Lucy in Disguise         5,000             2,500 50.0%                  
                          57,500            23,775          41.35%                    
               1Petitioner also paid Stachowski Farms a $7,125 (15-percent) commission on
          this sale.  Combining the commission paid to Mr. Dahart and to Stachowski Farms,
          petitioner paid a 55-percent commission on the sale of Pro Gato.            
               During the years in issue, petitioner owned the following              
          horses:                                                                     
                                   Horse                                              
                           Staleys Mahgelo                                            
                    Labamba1                                                          
                           Crystal Aere                                               
                           Marranda                                                   
                           Bint Quintina                                              
                           New Foundation                                             
                           Louisville                                                 
                           Morocco Grande                                             
                           PF Private Reserv2                                         
                              Apaladin3                                               
               1Sold in 1994.                                                         
               2Sold in 1993.                                                         
               3Born in 1994.                                                         
               During the years in issue, petitioner maintained a separate            
          checking account for his horse activity under the name “Arabian             

               6Petitioner also began paying Mr. Dahart a salary starting             
          in 1996.                                                                    




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