Tax Court In Brief | Wondries V. Comm'r | Deficiencies For Deduction Of Farm And Ranch Expenses; Hobby Or Activity Engaged In For Profit?

• Jurisdiction: United States,Federal
• Law Firm: Freeman Law
• Subject Matter: Tax, Income Tax, Tax Authorities
• Author: Freeman Law
• Published date: 17 January 2023

Tax Litigation: The Week of January 9th, 2022, through January 13th, 2023

• Simpson v. Comm'r, T.C. Memo. 2023-4| January 9, 2023 | Jones, J. | Dkt. No. 16923-16
• Vassiliades v. Comm'r, T.C. Memo 2023-1 | January 9, 2023 | Panuthos, J. | Dkt. No 12283-20S.
• Decrescenzo v. Comm'r, T.C. Memo 2023-7| January 12, 2023 | Halpern, J. | Dkt. No 16784-18

Wondries v. Comm'r, T.C. Memo. 2023-5| January 9, 2023 | Kerrigan, J. | Dkt. No. 13345-19 (deficiencies for deduction of farm and ranch expenses; evaluation of activity not engaged in for profit).

Summary: Paul Wondries and Patricia Wondries (the Wondries) sought relief from the Tax Court to review the IRS's determinations of deficiencies and accuracy-related penalties arising mainly from deductions for expenses reported on Schedules F, Profit or Loss from Farming, for tax years 2015, 2016, and 2017 and for an underpayment related to an IRA distribution. The Wondries owned a ranch, and they hired a foreman to manage the ranch. They quickly decided that the property would not produce sufficient income as a ranch or for guided hunts, so the Wondries began to improve the property for potential sale. Mr. Wondries performed the accounting and payroll function for the ranch. He maintained a running total of expenses incurred throughout the year as well as copies of checks and receipts. He also engaged an accountant to periodically review the ranch accounting work. Since acquiring the ranch, the Wondries never realized a profit nor broken even. They realized a net loss every year since the purchase in 2004 and have claimed corresponding deductions. For each of the years in issue the Wondries reported no more than $12,500 in income and expenses ranging from $235,580 to $474,793, which resulted in substantial losses. The IRS examined the Wondries' returns and determined that the ranch property was an activity not engaged in for profit and thus determined deficiencies relating to the Wondries' deductions of the ranch expenses.

Key Issues: (1) Whether the Wondries are entitled to deductions for expenses reported on the Schedules F, Profit or Loss From Farming, attached to their 2015, 2016, and 2017 federal income tax returns? (2) Whether the Wondries are liable for accuracy-related penalties pursuant to section 6662(a) for 2015 and 2016?

Primary Holdings: (1) Yes. After weighing all the facts and circumstances, and by applying the non-exhaustive factors contained in the Treasury Regulations, the Tax Court concluded that...