The petitioner explained that hed wanted to introduce hogs on his land from day one. The petitioner
Question:
The petitioner explained that he’d wanted to introduce hogs on his land “from day one.” The petitioner testified that he consulted two hog experts for advice, but those men managed much larger herds–600 and 1,500 head respectively–than what the petitioner could reasonably expect to put on his property. The petitioner, however, could not recall when this consultation took place or what advice he received. In any event, he didn’t actually have hogs on his property until at least 2008, right after he learned that the IRS was going to audit him. And he explained that many of the activities that he reported as related to hogs were really activities that he undertook in preparation for hogs that would arrive sometime in the future. These included the installation of some fencing and repairs to the barn.
The petitioner’s CPA believed that the LLC that owned the farm was a business, and they reported its principal business activity as a farm and its principal product/service as hogs. As JudgePorky so eloquently put it “[a] pig farm without pigs and a treenut farm that doesn’t yet harvest nuts is highly likely to produce a bumper crop of losses.” And lose it did.
In April 2008, the petitioner was notified that Bagley Hill Farms was under audit for tax year 2005. After he received this notice, the petitioner made sure to get a forest-management plan. Hogsthen also showed up on the property.
The IRS determined to make adjustments to the petitioner’s joint tax returns, and two of these adjustments led to litigation–the IRS’s disallowance of the deductions from the LLC and the IRS’s disallowance of a large charitable-contribution deduction for the contribution of a conservation easement that the petitioner and his wife donated along with several other couples, which is the subject of the next case to be reviewed.
Issues:
Is the Petitioner allowed to deduct expenses associated with this farm?
Does the manner in which the farm’s activities are conducted relevant to deductibility of expenses?
Must the petitioner show previous expertise in the operations of a farm to make expenses deductible?
Expert Answer:
The petitioner is not allowed to deduct expenses associated with this farm because the farm does not appear to be a business The petitioner did not have h ogs on his property until after he learned th... View the full answer
