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performed and the expenses incurred in producing a commodity * *
* [and] includes such activities as the actual work of planting,
cultivating, and harvesting crops, and the furnishing of
machinery, implements, [and] seed". Sec. 1.1402(a)-4(b)(3)(ii),
Income Tax Regs.
Respondent contends that the payments received by
petitioners under the contracts do not represent rentals from
real estate, but rather represent compensation for petitioner's
services in producing the beet crop. In the alternative,
respondent contends that if the payments received by petitioners
are rentals from real estate, then such payments were received
under an arrangement obligating petitioner to materially
participate in the production of beets, and that petitioner did
materially participate in such production.
Upon examination of the facts in this case, we are convinced
that petitioner was obligated to and did materially participate
in the production of beets on his farm. The contracts between
Dean Foods and petitioner called for petitioner to supply the
"machinery, labor, and other facilities necessary for production
of canning beets". Indeed, petitioner supplied most of the
necessary farm equipment and undertook all of the labor necessary
to produce beets on his farm, including: plowing, tilling and
fertilizing the beet field, planting the beets, applying
herbicide, cultivating, harvesting, and arranging for delivery of
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Last modified: May 25, 2011