John R. and Edith M. Garbini - Page 9

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               We next consider the time and effort expended by the                   
          taxpayer in carrying on the activity.  Petitioner worked on the             
          ranch almost everyday and employed one full-time ranch hand                 
          during the taxable years in issue.  The ranch hand performed                
          general maintenance of the property and barns.  Petitioner                  
          occasionally hired outside temporary labor.                                 
               We next consider the taxpayer’s expectation that the assets            
          used in the activity may appreciate in value.  Petitioner                   
          contends that he has enhanced and created value in the trees and            
          the carbon credits related to the trees.  Petitioner paid                   
          $566,000 for the ranch in its undeveloped condition.  With the              
          improvements made by petitioner and the value of the timber and             
          carbon credits, petitioner estimates that the value of the trees            
          alone is $2.5 million and that the ranch is worth $15 million.              
          Petitioner did not provide any basis for such estimates.                    
          Petitioner stated that since 1984, with the exception of 1994 and           
          1995, he has planted 3,000 to 5,000 trees per year.  Petitioner             
          further stated that these trees are not considered suitable for             
          harvesting until 7 years after planting.  We note that no trees             
          were harvested during the taxable years in issue.  Petitioner               
          contends that the growing trees have value and profit potential             
          in the form of cut timber and carbon credits.  Again, petitioner            
          never sold any carbon credits during these 2 taxable years.                 

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