River City Ranches #1 Ltd., Jeffry Bergamyer, Tax Matters Partner - Page 10

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          The account was in the name of River City Ranches.  Sometime in             
          1990, Hoyt discontinued using that account.  He implemented a new           
          business practice of commingling all Hoyt organization funds in             
          one checking account referred to as the pooling account.  This              
          account was in the name of W.J. Hoyt Sons Ranches MLP (MLP).  The           
          funds in the pooling account were then allocated to the various             
          Hoyt entities on the basis of a percentage determined by Hoyt.              
               David Barnes (Barnes), a longtime sheep breeder and Hoyt’s             
          childhood friend, owned and operated a sheep breeding business              
          called Barnes Ranches.  From April 1981 through February 1987,              
          Hoyt, representing the Hoyt sheep partnerships, entered into                
          agreements with Barnes Ranches.  Some of the sheep partnerships             
          did not have all of the principal documents evidencing their                
          purported sheep sale agreements with Barnes Ranches.  Each                  
          partnership allegedly purchased breeding ewes from Barnes Ranches           
          and concurrently entered into a 15-year management or sharecrop             
          agreement with Barnes Ranches.  The purported sheep breeding                
          activities of the partnerships were not arm’s-length transactions           
          because Hoyt and the Barnes family were not independent parties             
          acting at arm’s length.  Neither Barnes Ranches nor the                     
          partnerships adhered to the contractual terms of the agreements             
          for the purported purchase of breeding ewes by the sheep                    
          partnerships.  In actuality, the sheep partnerships acquired none           
          of the benefits or burdens of ownership of any of the sheep.                

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Last modified: November 10, 2007