Case: Taxpayers Failed to Show Reasonable Cause for Loss Deductions, Lack of Effort to Ascertain Tax Liability (T.C. Memo)

Taxpayers did not engage in their ranching activity for profit during the tax years at issue, held the U.s. Tax court in a memorandum opinion, affirming the IRS’s disallowance of loss deductions and the imposition of accuracy-related penalties. Taxpayers, a married couple, operated a ranch that included pecan farming, team roping, and other activities. The court analyzed the nine factors in Treas. Reg. §1.183-2(b) to determine profit motive, finding that six factors favored the IRS, one favored taxpayers, and two were neutral. Key factors weighing against a profit motive included the lack of businesslike recordkeeping, substantial losses over many years, ...