Michael G. Bunney - Page 4

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          The Horse Activity                                                          
               Petitioner began riding horses when he was 8 years old and             
          has always had an interest in horses.  In 1990, he developed an             
          interest in “reining” horses, a type of western riding sport.               
          Petitioner engaged in the horse activity under the name M&S                 
          Performance Horses (M&S).  At the outset, petitioner neither                
          obtained a business license nor filed a fictitious name statement           
          for M&S.  During the years in issue, petitioner operated M&S to             
          breed, train, sell, and compete horses.                                     
               Petitioner researched the horse activity by going to reining           
          competitions, reading books and publications about the industry,            
          and attending clinics.  In 1992, petitioner purchased his first             
          breeding stallion, an American paint horse, Bandits Lucky Doc.              
          On November 23, 1992, petitioner prepared a business plan for               
          M&S, including an income statement and an estimate of revenues              
          and expenses.                                                               
               Over the next few years, M&S changed direction due to a                
          change in the breeding rules for reining horses.  As a result of            
          this change, petitioner began to purchase high-quality broodmares           
          to breed with horses in southern California.  Petitioner did not            
          update his business plan to reflect the change in the direction             
          of the business.  Petitioner sold Bandits Lucky Doc in 1996.                
               Petitioner employed Manuel Campos (Campos) as a trainer for            
          6 years.  Campos’s business, Manuel Campos Performance Horses               

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Last modified: May 25, 2011