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1995, petitioners and the sons contributed equally to farm
expenses and shared equally in farm profit or loss. During 1994
and 1995, crops grown on the farm were either fed to farm
livestock or sold, and any profit generated from the farm
operation, including profit from the sale of crops and livestock,
was split approximately equally between petitioners and the sons.
Petitioners delegated to their sons the authority to decide
whether crops raised on the farm were to be fed to livestock or
sold on the open market. During 1994 and 1995, the sons sold
corn and soybeans in petitioners’ names because it was
economically advantageous to do so.
Pursuant to the arrangement in effect for 1994 and 1995,
petitioners paid part of the farm expenses. In November 1994 and
again in November 1995, petitioners estimated the results of the
farming operation and wrote checks to the sons to reimburse them
for petitioners’ share of farm expenses. In November 1994,
petitioners paid $25,000 to each son; in November 1995,
petitioners paid $35,000 to each son.3 At the end of the year,
petitioners and the sons added up the income earned from the farm
operation, subtracted the farm expenses petitioners and the sons
3Although the memo portion of each personal check written in
1994 states that the check was for “corn purchased”, petitioners
admitted at trial that they paid the money to reimburse the sons
for petitioners’ share of expenses incurred in the farming
operation.
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Last modified: May 25, 2011