John R. and Edith M. Garbini - Page 12

                                       - 11 -                                         
          operate it, they never had a business plan or took steps to                 
          operate the ranch to make a profit.  Taking the record as a                 
          whole, we find that the facts and circumstances indicate that               
          petitioners did not possess the actual and honest objective of              
          making a profit from their ranch.  Therefore, we find that                  
          petitioners were not engaged in an activity for profit.  Sec.               
               Pursuant to section 183(b)(2), deductions are allowed for an           
          activity not engaged in for profit, but only to the extent that             
          gross income exceeds the deductions allowable under section                 
          183(b)(1) without regard to whether or not the activity is                  
          engaged in for profit.  Petitioners did not prove that they had             
          any such expenses.  Because petitioners had no gross income for             
          the taxable years in issue, none of their claimed expenses are              
          deductible.  Therefore, we sustain respondent’s determinations.             
               As to the accuracy-related penalties imposed for the taxable           
          years in issue, respondent has satisfied his burden of production           
          under section 7491(c).  Higbee v. Commissioner, 116 T.C. 438,               
          446-447 (2001).  Section 6662(a) imposes a 20 percent penalty on            
          the portion of any underpayment of tax attributable to negligence           
          or disregard of rules or regulations.  Sec. 6662(b)(1).                     
          Negligence is any failure to make a reasonable attempt to comply            
          with the provisions of the internal revenue laws and includes any           
          failure by the taxpayer to keep adequate books and records or to            

Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  Next

Last modified: May 25, 2011