River City Ranches #1 Ltd., Jeffry Bergamyer, Tax Matters Partner - Page 11

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               Under the agreements, the partnerships were to purchase the            
          sheep by issuing promissory notes to Barnes Ranches.  The notes             
          were then personally assumed by the partners of the partnership             
          under an assumption agreement signed by Hoyt.  The promissory               
          notes that the sheep partnerships issued for the purchase of the            
          sheep did not represent bona fide recourse debt.  The security              
          interests granted to Barnes Ranches by the partnerships to secure           
          payment on the partnership promissory notes were not valid.                 
          Barnes Ranches never requested payment from the partnerships or             
          the individual partners on the promissory notes, and the                    
          partnerships were not obligated to pay their promissory notes.              
          The individual partners of the partnerships were not personally             
          liable for the promissory notes to Barnes Ranches and never                 
          directly paid Barnes Ranches on the notes.  The assumption                  
          agreements that Hoyt signed on behalf of individual partners with           
          respect to the partnerships’ promissory notes were not legally              
          enforceable against the individual partners.  Consequently, the             
          promissory notes were not bona fide recourse debt, were not valid           
          indebtedness, and were illusory, having no practical economic               
               The purchase price of the flock purportedly sold to each               
          partnership exceeded the value of each partnership’s flock, and             
          many of the sheep purportedly sold did not exist.  The bills of             
          sale that Barnes Ranches issued the sheep partnerships listed               

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Last modified: November 10, 2007