Tax Court In Brief | Hoakison v. Comm'r | Schedule F Farming Expense Deductions And Deficiencies Relating To Same

• Published date: 16 December 2022
• Subject Matter: Tax, Income Tax, Tax Authorities
• Law Firm: Freeman Law
• Author: Freeman Law

THE TAX COURT IN BRIEF – DECEMBER 5TH – DECEMBER 9TH, 2022

Freeman Law's "The Tax Court in Brief" covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

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Tax Litigation: The Week of December 5th, 2022, through December 9th, 2022

• Mattson v. Comm'r, T.C. Memo. 2022-118 | December 6, 2022 |Copeland, J. |Docket No 16982-18P

Hoakison v. Comm'r, T.C. Memo. 2022-117| December 5, 2022 | Paris, J. | Dkt. No. 16577-17

Short Summary: Mr. and Mrs. Hoakison (collectively, the "Hoakisons") are long-time farmers. They own real estate used for farming and utilize various equipment to assist with their farming operations, including tractors and pickup trucks. In 2012, the Hoakisons also constructed a machine shed for a cost of $108,856, which was paid in cash.

The Hoakisons are not tax professionals and do not have advanced educations. Accordingly, for their 2013, 2014, and 2015 tax years, they relied on Mr. Powell, a farm management specialist with a master's degree in agricultural education, to prepare their returns on their behalf.

The IRS selected the Hoakisons' 2013, 2014, and 2015 tax returns for examination. The IRS disallowed many of the Schedule F, Profit or Loss from Farming ("Schedule F"), deductions they claimed related to their farming activities. The IRS also imposed accuracy-related penalties regarding the disallowed deductions and related underpayment of tax for 2013, 2014, and 2015.

Key Issues:

• Whether the Hoakisons are entitled to deduct depreciation claimed on Schedule F, Profit or Loss from Farming, beyond amounts conceded by the IRS.
• Whether the Hoakisons are entitled to deduct certain other expenses (g., gasoline, repairs and maintenance, etc.) on Schedule F beyond amounts conceded by the IRS.
• Whether the Hoakisons are liable for accuracy-related penalties.

Primary Holdings:

• To the extent the Hoakisons provided sufficient evidence regarding their cost and other bases in the various tractors, they are entitled to depreciation deductions on the tractors. Moreover they are entitled to depreciation deductions related to the machine shed. Finally, with respect to the pickup trucks, the Hoakisons are entitled to depreciation deductions on the trucks to the extent they met the strict substantiation requirements of section 274(d) Otherwise, the Hoakisons are not entitled to the remaining depreciation deductions claimed for the tractors and the pickup trucks; moreover, to the extent the Hoakisons claimed additional deductions related to the farm equipment and vehicles and already claimed accelerated depreciation under section 179, those deductions will be disallowed.
• The Hoakisons are entitled to some of the claimed deductions (g., utility expenses, umbrella policy insurance, etc.) on Schedule F to the extent permissible under the Cohan doctrine and not otherwise disallowed under section 274(d). They are entitled to all of their claimed deductions for the insurance on the machine shed. They are not entitled to their claimed deductions for gasoline, fuel, and oil under section 274(d) except for small deductions related to propone which were used in the farming equipment. Moreover, they are entitled to additional repair and maintenance...