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depreciation are directly attributable to the holding of the land
and therefore should be excluded when determining whether the
income from farming exceeds the deductions therefrom. The
parties disagree regarding the treatment of the conservation
expenses reported on the Schedules F, petitioner and respondent
contending that they are attributable to landholding and farming,
respectively. Since a precondition for the current deduction of
a conservation expenditure is that the taxpayer be engaged in the
business of farming, see sec. 175(a), we agree with respondent
and conclude that the conservation expenses are not directly
allocable to the land for purposes of section 1.183-1(d)(1),
Income Tax Regs.
Excluding the Schedule F “Other income” from income and the
Schedule F deductions that are “directly attributable to the
holding of the land”, petitioners’ “income derived from farming”
and “deductions attributable to * * * farming” within the meaning
of section 1.183-1(d)(1), Income Tax Regs., during the years in
issue are as follows:
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