- 10 -
its own livestock activity, and an almond grove for income.
Omega was responsible for expenses in connection with the
property and paid CBR rent of more than $30,000 for each of the
years under consideration. For 1993, Omega’s only receipt from
the “farming” activity was $12,076 rent from the third-party
lease. For 1994, Omega’s only receipts were $2,363 from almond
sales and $2,021 from the sale of livestock. For 1995, Omega’s
only receipt was $185 from the sale of livestock. Finally, we
note that Omega’s reported expenses for 1993, 1994, and 1995, in
addition to the rent to CBR, exceeded $100,000 annually and were
generally increasing. Accordingly, Omega’s annual expenses
vastly exceeded steadily decreasing receipts. With this backdrop
we analyze whether Omega’s activity was “not engaged in for
profit” within the meaning of section 183.
The ordinary and necessary expenses incurred in carrying on
an activity which constitutes a trade or business are generally
deductible. See sec. 162(a); sec 1.183-2(a), Income Tax Regs.
Section 183 provides, in part, that if an individual’s or an S
corporation’s activity is “not engaged in for profit”, then no
deduction attributable to that activity shall be allowed except
as otherwise provided under section 183(b). One of the
motivating factors behind the passage of section 183 was the
desire to create a more objective standard to determine whether a
taxpayer was carrying on a business for the purpose of realizing
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011