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$2,206, $2,363, and $20,388 from the sale of livestock, almonds,
and grazing rights, respectively.3
During the 3 years in issue, Omega’s recycling activities
were highly profitable. As discussed above, Omega’s net income,
after reductions for farm-activity expenses, was $217,787,
$483,949, and $660,375 for 1993, 1994, and 1995, respectively.
Petitioners also received wages from Omega. The farm activity
losses substantially reduced Omega’s gross income from its
recycling business, which provided significant passthrough tax
benefits to petitioners. The receipt of a substantial amount of
income from sources other than the activity, especially if the
losses from the activity generate large tax benefits, may
indicate that the taxpayer does not intend to conduct the
activity for profit. See sec. 1.183-2(b)(8), Income Tax Regs.
In summary, petitioners/Omega did not possess the requisite
intent to profit from the farm operations. Petitioners are
therefore subject to the restrictions set forth in section 183
for activities not engaged in for profit.
Next we consider whether petitioners are entitled to deduct
amounts claimed as contributions to CBR during the 1990 and 1991
tax years and carried over into the years in issue. We consider
3 The only sales of almonds occurred in 1994. Most of the
farm’s income came from pasture rent, which totaled $2,692,
$5,620, and $12,076, for 1991, 1992, and 1993, respectively.
Omega had no revenue from pasture rent during 1990, 1994, and
1995.
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