Larry G. and Mary L. Bangs - Page 18

                                        -18-                                          
          abandoned the lemon farming activity.  In fact, Mr. Bangs                   
          indicated at trial that he would await the outcome of this case             
          before he decided whether to drill more wells on the property.              
          Such conduct is inconsistent with a predominant, principal, or              
          primary purpose of making a profit from the activity.                       
               Moreover, petitioners sustained large losses from the lemon            
          farming activity from the start and continuing through the years            
          at issue.  See Golanty v. Commissioner, 72 T.C. 411, 427 (1979),            
          affd. without published opinion 647 F.2d 170 (9th Cir. 1981);               
          sec. 1.183-2(b)(6), Income Tax Regs.  The initial losses                    
          contained an element of startup costs and involved factors unique           
          to lemon growing.  Petitioners were aware that it would take 10             
          years before the lemon trees reached full production.  The losses           
          continued, consistent with this forecast, for at least 9 years              
          after petitioners began the lemon farming activity.                         
               The losses continued for all of the years at issue, well               
          beyond the startup phase of the activity.  See Engdahl v.                   
          Commissioner, supra; sec. 1.183-2(b)(6), Income Tax Regs.                   
          Petitioners contend that these continued losses were due to                 
          unforeseen events beyond their control, such as the wildfire and            
          the water shortage.  See sec. 1.183-2(b)(6), Income Tax Regs.  We           
          find petitioners’ testimony regarding the water shortage lacks              
          credibility.  For example, the pathologist who examined                     
          petitioners’ trees in 1997 noted that the problems with their               
          trees might be due to the soil staying wet for too long.                    






Page:  Previous  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  21  22  23  24  Next

Last modified: May 25, 2011