Under section 182, the election to deduct expenditures incurred in the clearing of land is applicable only to a taxpayer who is engaged in “the business of farming” during the taxable year. A taxpayer is engaged in the business of farming if he cultivates, operates, or manages a farm for gain or profit, either as owner or tenant. For purposes of section 182, a taxpayer who receives a rental (either in cash or in kind) which is based upon farm production is engaged in the business of farming. However, a taxpayer who receives a fixed rental (without reference to production) is engaged in the business of farming only if he participates to a material extent in the operation or management of the farm. A taxpayer engaged in forestry or the growing of timber is not thereby engaged in the business of farming. A person cultivating or operating a farm for recreation or pleasure rather than for profit is not engaged in the business of farming. For purposes of section 182 and this section, the term farm is used in its ordinary, accepted sense and includes stock, dairy, poultry, fish, fruit, and truck farms, and also plantations, ranches, ranges, and orchards. A fish farm is an area where fish are grown or raised, as opposed to merely caught or harvested; that is, an area where they are artificially fed, protected, cared for, etc. A taxpayer is engaged in “the business of farming” if he is a member of a partnership engaged in the business of farming. See § 1.702-1.
[T.D. 6794, 30 FR 790, Jan. 26, 1965]
Notes of Decisions
Hunter Faulconer, Sr. & Mary T. Faulconer v. Comm'r of Internal Revenue, 748 F.2d 890 (4th Cir. 1984).
“The regulations provide that an activity will not be treated as not engaged in for profit merely because the taxpayer has purposes or motivations other than solely to make a profit, 26 C.F.R. § 1.182-2 (b)(9), but that deductions are not allowable under sections 162 or 212 for…”
Leger v. Comm'r, 53 T.C.M. 384 (Tax Ct. 1987).
· cites it 2× “Therefore, the book publishing venture that Arts entered into was not, as petitioner argues, a speculative one where most ventures fail but with a small chance of making a large profit.”
In Re Sugar Pine Ranch, 100 B.R. 28 (Bankr. D. Or. 1989).
“175-3 and 26 CFR § 1.182-2 ). Suffice it to say that: “Declarations made on income tax returns are not determinative of whether a debtor is a farmer for purposes of Chapter 12.”
Maple v. Comm'r, 27 T.C.M. 944 (Tax Ct. 1968).
· cites it 2× “175-3, Income Tax Regs. Respondent contends that in fact Corona assumed no risk of loss of the seedlings, asserting that all of the agreements relating to their purchase were drawn up after the trees were ready to be transplanted to the Steel Valley property.”
Carson v. Comm'r, 60 T.C.M. 870 (Tax Ct. 1990).
· cites it 2× “Substantial income from outside sources, showing the lack of need to make a profit from the activity, may indicate a lack of profit objective.”
Stubblefield v. Comm'r, 56 T.C.M. 405 (Tax Ct. 1988).
· cites it 2× “The essential test to be applied is whether petitioner possessed an actual and honest profit objective. Sec. 1.182-2(a), Income Tax Regs.”
De Mendoza v. Comm'r, 68 T.C.M. 42 (Tax Ct. 1994).
· cites it 2× “Expectation of Appreciation in Value The expectation that assets used in the activity will appreciate in value sufficiently to lead to an overall profit when netted against losses may indicate a profit motive.”
Carter v. Comm'r, 37 T.C.M. 859 (Tax Ct. 1978).
· cites it 2× “In sum, we conclude that petitioners' primary or dominant purpose was to get away from the pressures of their previous lives and that their contemplated chartering and writing activities were merely incidental to accomplishing that purpose.”
Cameron v. Comm'r, 43 T.C.M. 1341 (Tax Ct. 1982).
· cites it 2× “A fish farm is an area where fish are grown or raised, as opposed to merely caught or harvested; that is, an area where they are artificially fed, protected, cared for, etc. A taxpayer is engaged in "the business of farming" if he is a member of a partnership engaged in the…”
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