Raymond T. and Patricia Murphy - Page 2

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                                  FINDINGS OF FACT                                    
               Raymond Murphy has been a veterinarian specializing in                 
          horses for forty years.  He also became a real estate developer,            
          and a few of the deductions originally contested in this case               
          come from that business.  But the bulk of this case, and Murphy’s           
          great pleasure, comes from breeding, raising, and trading                   
          thoroughbred horses.  Although Murphy has owned a stableful over            
          the years, only three horses figure in this case:  Hamseh, Desert           
          Spice, and On the Piste.  All three are broodmares, and all came            
          to Murphy from what he described as his “wheeling and dealing”              
          and “whipping and dipping” with Philip DeVere Hunt of Tipperary,            
          Ireland, a fellow breeder whom Murphy has long known.                       
               Murphy bought Hamseh and Desert Spice from Hunt in 1994.               
          Hamseh cost him $600,000, which he financed in part with a                  
          promissory note for $425,000 in Hunt’s favor.  Interest on this             
          note accrued at a rate of ten percent per annum on any unpaid               
          balance, and the note required interest payments in August 1995             
          and August 1996, and then all remaining principal and interest by           
          December 31, 1996.  The note stated that “all payments shall be             
          first applied to interest and the balance to principal.”                    
               Desert Spice cost Murphy $385,000.  He financed $379,000 of            
          the total price with a promissory note.  Like the note for                  
          Hamseh, this note also had a specific repayment schedule:                   
          (1) $40,000 of principal in May 1995; (2) interest at ten percent           






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