J. Michael and Susan Reimer - Page 7




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               Petitioners decided to change the direction of their                   
          operation by going into mare breeding.  In 1976, the year that              
          petitioners began their breeding activity and completed a                   
          Schedule F, Profit or Loss From Farming, for their horse breeding           
          endeavor, they purchased a second Arabian horse, Emkay Asmara               
          (Asmara), a yearling filly.  This horse was petitioners’ first              
          breeding mare.  Asmara was bred first with Amerigo and a foal was           
          born in 1977, which died several hours later.  Asmara was then              
          bred to Bak, owned by Paramont Arabians (Paramont).  Paramont               
          became interested in Asmara, and, as a result, petitioners worked           
          out a trade arrangement, whereby Paramont would keep Asmara in              
          foal and petitioners would obtain a higher quality filly than               
          Asmara.  When petitioners had the veterinarian examine the                  
          Paramont filly on their premises, it was determined that the                
          filly had a major breeding fault.  The filly was returned and               
          petitioners received back Asmara in foal.  The foal was born in             
          1978 but only lived for 10 days.  Petitioners brought Asmara back           
          to Paramont for breeding.                                                   
               Paramont was interested in Asmara because they had a                   
          potential buyer for her.  Petitioners sold Asmara to Paramont and           
          acquired Ms. Bak in 1979, a mare born in 1976.  On September 1,             
          1981, petitioners entered into a mare lease agreement with Keg              
          Arabian.  The Keg Arabian stallion named Pattrone was bred to Ms.           
          Bak for the purpose of obtaining a marketable foal.  The first              







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