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activities on the four properties (collectively, the Melrose,
Chireno, and Colorado ranches and the Kerrville farm are referred
to as the four properties). Also, petitioners failed to maintain
logs or journals with regard to their participation in the
activities on the four properties. Petitioners, however, did
consult with local government conservation agencies about how
best to restore and improve the four properties.
Throughout their ownership of the four properties,
petitioners reported losses. Specifically, for the years 1986 to
1994, petitioners incurred losses (excluding depreciation
deductions) totaling $1,284,349. As for the years in issue,
petitioners claimed the following losses with regard to the
ranching and farming activities:
Ranching and Farming
Taxable Year Losses
1992 $122,893
1993 205,331
1994 261,469
Rental Properties
In February 1992, petitioners purchased the St. John rental
property for $375,000. In December 1992, petitioners transferred
a one-half interest in the St. John rental property to the
Jorgenson Family Credit Shelter Trust (the Trust). On their 1994
tax return, petitioners reported $149,230 in expenses with regard
to the St. John rental property on Schedule E. On the notice of
deficiency, respondent determined that petitioners and the Trust
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