Ingrid Capehart - Page 14

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                    of the partnership’s existence (as revised by the                 
                    formula discussed above), times $4,000 per head.                  
                    Cattle will be considered placed in service in the                
                    year the partnership is formed.                                   
               •    All cattle purchased are new section 38 property.                 
                        *     *     *     *     *     *     *                         
               •    Satisfaction of obligations for interest,                         
                    principal payments and management fees by                         
                    transferring calves and culled cows will                          
                    constitute ordinary income to the investor                        
                    partnerships.  This convention is consistent with                 
                    the Tax Court’s decision in Bales v. Commissioner,                
                    which provides that                                               
                    "    calves are not section 1231(a) property; and                 
                    "    although culled cattle are section 1231(a)                   
                         property, the gain on which may be long term                 
                         capital gain (depending on the holding                       
                         period), depreciation allowed must be                        
                         recaptured as ordinary income under the                      
                         provisions of section 1245.                                  
                        *     *     *     *     *     *     *                         
               •    For all years after 1980, Management Company is                   
                    comprised of Mr. Hoyt, who is entitled to 15% of                  
                    the profits; and the 24 investor partnerships in                  
                    existence at December 31, 1981.                                   
                    "    The investor partnerships are each entitled                  
                         to 1/24 of the remaining 85% of the profits.                 
                    "    The investor partnerships are each entitled                  
                         to 1/24 of 100% of any net losses.                           
               •    Each partner’s profit and loss sharing percentage                 
                    is determined annually by comparing the partner’s                 
                    capital account to the aggregate of the capital                   
                    accounts of all partners in the partnership.  This                
                    determination is made based on the total capital                  
                    owned, not the total capital originally                           
                    subscribed.                                                       







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Last modified: May 25, 2011