Austin L. Mitchell and Rebecca A. Mitchell - Page 12




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               Petitioner contends that his work on the farm enhanced its             
          productivity and value.  Petitioner and Mrs. Mitchell testified             
          that they believed that the farm is appreciating in value and               
          that the trees petitioner planted and his other work had                    
          increased the value of the farm.  Petitioners point out that an             
          expectation that timber will appreciate in value may show that              
          the taxpayer had a profit motive, citing Kurzet v. Commissioner,            
          T.C. Memo. 1997-54.  Petitioners did not estimate the amount of             
          appreciation in their property.  Harris testified that the farm             
          was worth about $500 per acre in 1981 and about $1,000 per acre             
          in 2000.  If we use Harris’s estimate, petitioner’s farm                    
          appreciated about $50,000 ($500 times 100 acres) in 19 years                
          (about $2,632 per year).  Petitioners reported losses averaging             
          $8,433 in the years in issue, which is more than three times                
          Harris’s estimate of the farm’s average annual appreciation.  We            
          are not convinced that petitioner expected appreciation to exceed           
          his losses.  This factor favors respondent.                                 
               5.   Taxpayer's Success in Other Similar Activities                    
               The fact that a taxpayer previously operated similar                   
          activities profitably may show that the taxpayer has a profit               
          objective.  Sec. 1.183-2(b)(5), Income Tax Regs.  Petitioner                
          contends in his posttrial brief that he has spent most of his               
          life farming or advising others about their farms.                          








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