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could they identify the specific breeding sheep they owned during
the periods at issue. No sheep were transferred to the
partnerships from Barnes Ranches.
Under the sharecrop operating agreements, Barnes Ranches was
to manage and pay all expenses with respect to each partnership’s
breeding sheep. However, Barnes Ranches did not provide the
partnerships with the management services required under the
agreements. Barnes Ranches did not, as required under the
sharecrop agreement, maintain adequate records allowing it to
identify at all times the breeding sheep owned by each
partnership. Barnes Ranches did not increase the number of
breeding sheep owned by the partnerships by a net 5 percent per
year as required by the sharecrop agreement. Barnes Ranches did
not replace ewes purportedly owned by the partnerships that could
no longer serve as breeding ewes with other ewes as required
under the sharecrop agreement, nor did the partnerships receive
any other benefit from the fertility warranty in the sharecrop
agreement.
The sheep partnership transactions were shams and lacked
economic substance. The partnerships themselves were shams and
lacked economic substance. The partnerships had no business
purpose beyond the generation of tax benefits.
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Last modified: November 10, 2007