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Petitioners assert that the sustained losses were offset by the
appreciation in value of the Pescadero property. Respondent
counters that petitioners' farming activity and holding of the
Pescadero property were separate activities and the assets used
in each activity must be separately considered with respect to
this element.
Petitioners estimated that from 1979 to the time of trial,
on the basis of the sale prices of neighboring parcels of land,
their farm appreciated at least $724,124 ($1 million, the
estimated real estate value, less the $275,876.80 purchase price)
and that the appreciation indicates a profit objective. In that
regard, petitioners made substantial improvements to the
residence(s), the barns, and other buildings, as well as
installing an irrigation system. Petitioners made these
improvements with the intention of "add[ing] value and
maintain[ing] the value of the property so it will continue to
appreciate and be attractive."
The circumstances are different with respect to their
farming activity. Petitioners stated that once their livestock
5(...continued)
regulations thereunder apply, the activity or
activities of the taxpayer must be
ascertained. * * * In ascertaining the
activity or activities of the taxpayer, all
the facts and circumstances of the case must
be taken into account. * * * [Sec. 1.183-
1(d)(1), Income Tax Regs.]
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