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W., Homeplaces Magazine
|Once per month, this blog will share my insights on the facinating world of the horse business.
Although I will not be taking comments on this blog, your feedback is welcome - email link
Past Cases of the Month are available at this link
The current Case of the Month is available at this link
One of the worst cases I’ve ever been involved with had to do with the death of a young boy following a freak accident. The mother and her boyfriend had been celebrating all day at the local bar next to the riding arena following the conclusion of a little horse show.
The bar had been purchased only one week prior but fortunately the liability insurance policy had been transferred and paid for by the closing date.
Adding to the tragedy were the horrible facts: The little boy, his mother and a worthless boyfriend had been riding and showing at the town’s local Western horse show, (the bar was just a “plus” for the mom and her boyfriend). As you might have guessed, the adults adjourned to the bar and drank themselves into a stupor.
The little five year old had been told to “Get the @%&&$ out of here.” The story now does not end well.
Being a little boy and bored by the grownups, he went outside and started tossing rocks at his mom’s horses tied together at the hitching rack. The mare didn’t much like the rocks and pulled back on the hitching post sending it flying some 60 feet in the air. Unfortunately, the post came down and landed squarely on the youngster’s head, killing him instantly.
Naturally, the rotten mother sued the bar claiming “It was all the bar’s fault;” which of course, it most definitely was not.
The case went to trial and the jury wisely awarded only $100.00 after only ½ hour of deliberation.
In 1986 Tax Act added Section 469 to the Tax Code and spelled the end to the massive tax deductions which had been used to shelter enormous sums of money which had built a giant market in investment horses primarily in the race horse business as well as the Arabian horse markets.
As many horsemen know, the Phoenix and Scottsdale, Arizona cities were home to some of the largest Arabian show barns. Almost overnight, horses which had been purchased for several hundred thousands of dollars were now worth a tenth of their purchase price.
The end result was that horse owners had to actually work in the business and their purchases had to actually “do something.” So just to own and take deductions for an Arabian show horse that only had to be led into the show ring was not enough to justify a huge investment.
The end result was that the performance horse was sought after and the owners and trainers had to ride, show and win at horse shows. Unfortunately, many trainers who were skilled at talking a client into buying a halter horse now had to ride, train and win which turned out to be tough for the trainer who hadn’t been taught themselves.
The result was that the IRS looked for 7 items which helped in justifying the deduction:
The taxpayer had to work at least 500 hours in the taxable year performing the activity.
The taxpayer had to perform substantially all the work in the activity.
The taxpayer must work at least 100 hours in the activity and no one else could work more than the taxpayer.
The taxpayer must show that the significant participation activity, or SPA, is a vital part of the business and that the taxpayer works at least 100-500 hours so that they exceed 500 hours per year.
The taxpayer must also show participation in the activity in any 5 of the last 10 years.
The taxpayer must also show the activities are personal service in nature and materially participated in the specific activity in any 3 prior years.
Based on all of the facts and circumstances, the taxpayer participates in the activity on a regular, continuous, and substantial basis during such year. However, this test only applies if the taxpayer works at least 100 hours in the activity, no one else works more hours than the taxpayer in the activity, and no one else receives compensation for managing the activity (As stated by Douglas P. Romaine, ESQ., Stoll Keenon Ogden PLLC, Lexington, Kentucky).
My advice to all horsemen who are considering a deduction part or parts of your horse business, is to see your tax attorney right away to get your house and barn in order. Please note that this writer is NOT an attorney and that I am bringing all this up so you can become aware of the significance of keeping and maintaining the most exacting of records.
The responsibility of the stable owner goes along the lines of providing adequate feed, bedding and cleaning the stable area. All such activities are performed with an eye towards protecting the animal from disease and improper activities involving the horse. That is to keep the horse safe from outside sources which could do harm.
The horses’s protection is important since why else would an outside horse owner trust the stable’s owner to collect money for board and stable rent.
Along this same line is the protection from communicable diseases such as “strangles.” Strangles is defined in Wikipedia the following way: Strangles (also equine distemper) is a contagious upper respiratory tract infection of horses and other equines caused by a bacterium, Streptococcus equi var. equi. Strangles is enzootic in domesticated horses worldwide. The contagious nature of the infection has at times led to limitations on sporting events.
Naturally, since the disease is highly contagious, it’s up to the stable to do all that is necessary to protect the horses from contracting it.
A word to the wise: As a stable owner, always make sure a new boarding horse is free from any and all known diseases. You may be held responsible for paying vet bills for a horse boarded at your place who contracts the illness from a new poorly screened boarder.
The business that NAES faces every day is interesting, to say the least. A most interesting case in point was a motor vehicle accident involving a team of Belgium draft horses.
The defendant’s car rear-ended a large horse trailer carrying one of the huge, 2300 pound draft horses, along with the plaintiff’s champion cutting horses. Both horses were severely injured, but fortunately, they did not have to be euthanized.
While both horses were injured, the draft horse’s performance as a member of a pulling team was damaged so that the insurance company had to pay the cost of the team, not just the single horse. The insurance also had to pay for the loss of use of the NCHA cutting horse since his use as a cutting horse was ruined because any further stress to his injured body would have hurt him more.
The important thing to remember is that it’s so important to take into account the exact jobs each of your horses does and be prepared if an accident happens.
Not getting along with one’s neighbors can often land folks into bunches of hot soup, as in this month’s case.
In this instance, a prize winning junior working hunter was attacked by the next door neighbor’s old stallion. Even though the old horse’s owner had been repeatedly warned to keep the stallion restrained, the horse was an escape artist. The old stallion got into a fight with the fancy show horse and caused close to $10,000.00 in veterinary bills and ended the career of a fine horse.
Putting it mildly, the two neighbors didn’t get along at all, and now with his $200,000.00 horse ruined there was no solution but to file suit. The case finally settled for about half of the show horse’s value.
Unfortunately, no one wins in a case such as this. At NAES many cases such as this one often come up and the lesson is to simply make sure that making sure that neighbor relations are kept up. Also, make sure your fencing and all stable facilities always kept up and lastly, keep current on your insurance.
This year’s University of Kentucky Law School Symposium on equine law brought up important items in horse activities. Equine mortality insurance was focused on by attorney, Harvey Feintuch of the national law firm, Cozen O’Connor.
Harvey’s talk focused on things we as horse owners must look at when insuring our horses. While we don’t think often of “Conditions Precedent to Liability of The Insured” all mortality policies have them. In other words, it is so important to be aware of things which may have happened to the horse prior to our purchasing, then insuring the horse.
If the horse died or had to be euthanized, how sad it would be if the insurance company’s claims investigator discovers a small item which happened to our horse before we owned him. Such small item may have been a small illness which was not divulged to the previous carrier and now pops up to negate our collecting on the monies due us for our horse’s death because we never said anything about it.
Obviously, it is so important to get all veterinary records relating to every horse we are considering buying. In other words, we must know everything about any horse we’re buying, because “not knowing” may come back to bite us later.
This month’s case should make us all focus on the importance of protecting any and all guests who come over to our home and stable area.
In this case a Super Bowl party scheduled a short trail ride using the owner’s ranch horses. Unfortunately, the riders hadn’t been forewarned about the “ride” and as such weren’t equipped to go on any ride since flip flops and shorts weren’t the proper apparel for any type of ride.
No one wanted to be a “party pooper” so they all went on the ride. The wide array of riders included some younger children, one of whom fell and got dragged about 150 feet.
Fortunately, the air-o-vac was able to get the child to a hospital in time to prevent catastrophic injuries but you can imagine the many law suits that were filed.
The insurance carrier simply wrote big checks to the injured participants in order to keep the plaintiffs out of court.
Obviously, the lesson learned is to always plan ahead in order to answer the numerous “what-if” questions….and always have a good and sensible answer to your questions. It seems as if this is another incident of “another good deed gets punished.” No…..it should make us all aware of the litigious world in which we live, but wouldn’t you have planned further ahead?
Several years ago NAES was asked to provide an appraisal on an amateur jumper horse who was injured in a fall at a large Connecticut horse show.
The horse’s owner claimed the career ending fall meant the horse would never show in the open jumper or related divisions again. He also claimed the horse had been worth well over the insurance policy’s $250,000.00 even though the 11 year old horse had been secretly purchased two months prior for $15,000.00.
My client insurance company authorized my trip back East to get the “low-down” on the horse and the claimant, since they would have to pay off on the “Loss of Use” policy. (By the way, the Loss of Use policy is not marketed and sold by most insurance companies because of the many problems in settling the “payoff” should an accident occur).
As my investigation found out, there was no way the horse could ever have been worth anything more than $10,000.00. It turned out the insurance policy’s owner had provided fraudulent horse show results and had sought and received a positive insurance exam from a very cooperative veterinarian.
Needless to say the insurance company’s offer of $10,000.00 was quickly accepted by the horse’s owner when confronted with the huge amount of questionable evidence. They obviously did not wish to go to a trial where the fraudulent schemes could be highlighted.
The lesson is obvious: Always make sure you are absolutely honest in making sworn statements to your insurance carrier.
This month’s case is really one that I’ve tried to explain to so many parents who want to buy the best and safest horse for their child.
As an example, in this instance, a concerned mother of a very green 14 year old rider wanted information to determine if she was making an appropriate purchase for her “baby.” She admitted she really didn’t know anything about horses and was in fact depending on her newly acquired trainer. The trainer had been teaching the young girl and had gotten the wealthy business woman & mother to spend $75,000.00 on an 8 year old horse which she just happened to own. The mother also explained that the trainer’s own barn vet would do the pre-purchase health evaluation for only $260.00.
The mother though didn’t feel right about the whole deal. I told her that her “gut” feel was spot on because a $75,000.00 young horse for a beginner rider was just plain nuts. I also explained that the trainer’s own vet should not be doing the all-important pre-purchase even if he was charging only $250.00. 260.00. Plus the vet himself should never have agreed to do the exam because of his obvious conflict in ethics.
I spent over an hour helping the mother to be a very observant business woman which she agreed to do. I have no idea how the entire transaction was going to work out, but at least she was a little bit smarter about the horse business.
I received a call that pops up every so often regarding unpaid invoices caused by an erratic client.
As an example, it often happens that when a moderate spending client expectantly runs up a large number of bills at a horse show, the trainer may be called upon to pay bills run up by a trainer’s client.
Imagine that at an out of town horse show a trainer is asked to pay the bills for one of your clients who has run up a bill for feed, bedding and additional blacksmith charges. As you know, the horse show is charged with making sure their vendors are paid.
It is important because the charges for your client’s horses needs to be paid because the horse show’s vendors are not in the business of getting paid from an out of state horse. So even though your client may have overlooked to pay the blacksmith, feed office, etc., the responsibility still rests with you, your client’s trainer, to get the horse show paid.
The show is well within their right in collecting the overdue/unpaid bills from you, the trainer. Now after you’ve paid the bill for your clients you need to get paid right away from your client. Unfortunately, trying to get paid and actually being paid are two very different things.
If you decide to sue the client, you’ll have to make a decision if the law suit will be worth it. In order to protect yourself as trainer, my advice would be to pay for a veterinarian to examine the client’s horses before they leave your facility or wherever the out of town horse show was. Unfortunately, your soon to be “old client,” may attempt to prove in court that the horse or horses were made un-sound because of your “below standard” care of the horses. So showing that the horses were in great shape when they left your stable, and therefore were healthy, will help to protect you. So, in other words, your former client’s suit will go nowhere.
You’ll just have to admit to yourself that although you are actually owed the money there is a very small chance that you’ll ever see it. The very important lesson that MUST be learned by every trainer is to always, always “BE PREPARED” & “ALWAYS ASSUME AND BE PREPARED FOR THE WORST.” Sorry.
It’s amazing after all these years the problem of downright fraud in the buying and selling of show horses is still alive and well.
I have been a champion of conducting your “due diligence” yourself. Don’t depend on just your trainer or anyone else to verify the selling points presented to you on “why” the horse is correctly priced. What that means is you getting the most accurate and correct information possible. So not only must you find all available show results but it must be verified meaning that you must contact the old owner.
Unfortunately, often it’s impossible to find the previous owner because your trainer claims ownership of the horse which may be true on a younger horse but on an older horse, who may be the wise decision for your younger child, but your trainer says the previous does not want any information divulged which may or may not be true. Obviously, you now have the possibility your trainer may not be looking out for your best interests.
Because trust is the key to your relationship with your trainer, it is imperative you trust the trainer/agent completely. You must note that any reluctance of your trainer to give you the previous owner’s contact information may be a tipoff that all information may not be given to you. Unfortunately, I have many, many instances where my clients have been cheated.
It does not seem to matter which breed or discipline there is, I have clients who have been victimized; plus the many and varied methods of committing such fraud is huge.
If you have questions regarding the horse you are trying to purchase and have any concerns please call. On a strictly confidential basis I’ll do the best I can to help you understand if there may be a problem with your purchase and at no cost to you. Please call 800-575-1669 anytime of the day or night and I’d be happy to help you.
As you might imagine, after 30 some years examining and often testifying at trials or writing opinions regarding horse sales and related activities, I have formed thoughts on ethics relating to such sales.
I have seen so many ways that crooks have managed to swindle and otherwise cheat the unsuspecting horse buyer. It’s just not right that folks trying to buy a good horse for their child, as an example, get cheated by an unethical horse dealer or seller.
One answer, and one that must be stressed more often, is that the actual owner of the horse in question, must stress that the person selling the horse, must do it in an entirely honest way. Remembering that it “takes two to tango,” as the saying goes, the seller bears responsibility in making sure that the sale goes through as it should. The actual horse’s owner bears a large amount of responsibility in making sure that there is no dishonest behavior in the sale.
I would suggest that a contract be drawn up that would guarantee that the sale is done in an ethical and honest way, and if there is something in the sale that is not honest, the actual seller or broker for the sale will be penalized. So it’s just not enough that you, the horse’s owner perhaps pays a sale commission, but that the sale is done in an absolutely above board manner.
If you have questions concerning the proper method of selling, (or buying), a horse, please feel free to call me at 800-575-1669 and I would be happy to review your upcoming deal with any eye to honest dealings, and at no charge too.
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