Lucian T. Baldwin, III - Page 28

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               Respondent contends that petitioner used Granot Loma as a              
          residence, and that LFI did not own Granot Loma and did not                 
          operate a trade or business or otherwise engage in any activity             
          for profit during the relevant years.  As we understand it,                 
          petitioner’s argument is that, from the date petitioners                    
          purchased Granot Loma, Granot Loma was a business asset that                
          petitioner and then LFI used in one or more business activities             
          for profit.  The activities that petitioner alleges he or LFI               
          conducted for profit at Granot Loma include a Christmas tree                
          farm, a timbering operation, a maple syrup operation, and a                 
          rental activity.  Petitioner also alleges that petitioners and/or           
          LFI acquired Granot Loma with the intent of renovating and                  
          operating it as a commercial property or selling it for a profit.           
          For the reasons set forth below, we agree with respondent.                  
               From the time petitioner and his wife purchased Granot Loma            
          in 1987, petitioner was determined to claim that Granot Loma was            
          a business and began to deduct Granot Loma’s expenses, initially            
          for 1987 on a Schedule F, and then through LFI, an S corporation.           
          For 1988, petitioner, through LFI, claimed deductions for                   
          depreciation of Granot Loma buildings and improvements (including           
          the lodge which was uninhabitable and in the process of being               
          renovated), other alleged operating expenses, and some of the               
          expenses incurred in renovating the lodge, claiming that Granot             
          Loma was an operating Christmas tree farm.  For 1990 through                

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