Rhett Rance Smith and Alice Avila Smith, et al. - Page 71




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          the operation of the cow activity in a businesslike manner.                 
          Accordingly, this factor is favorable for Zane.                             
               2.  Taxpayer’s Expertise--Through study, Zane gained                   
          expertise in the breeding of cows and in the use of Normande cows           
          for dairy purposes.  He sought professional advice and                      
          successfully used in the cow activity his animal husbandry                  
          expertise gained from breeding dogs.  Overall, this factor is               
          favorable for Zane.                                                         
               3.  Time and Effort Spent in Conducting the Activity--Zane             
          spent an average of 20 to 30 hours per week on his cow and dairy            
          farm activity.  Certainly, 20 to 30 hours per week is                       
          significant.  Accordingly, this factor favors Zane.                         
               4.  Expectation That the Assets Will Appreciate in Value--             
          The term “profit” encompasses appreciation in the value of                  
          assets, such as land, used in the activity.  Sec. 1.183-2(b)(4),            
          Income Tax Regs.  Respondent contends:                                      
                    farming and the holding of land with the primary                  
                    intent to profit from an increase in its value                    
                    will be considered a single activity only if the                  
                    farming activity reduces the net cost of carrying                 
                    the land for its appreciation in value.  That is,                 
                    they will be considered a single activity only if                 
                    the income derived from farming exceeds the                       
                    deductions attributable to the farming activity                   
                    which are not directly attributable to the                        
                    holding of the land.                                              
               Zane has two separate farms, one in Hamilton, New York                 
          (Goose Hill), with approximately 400 acres purchased in 1998 for            
          $600 to $650 per acre and currently worth around $2,500 per acre            






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