Make Sure your Operation is Run Like Other Businesses
John Alan Cohan, Attorney at Law
Cattle Today
In hobby loss audits, the IRS sometimes views various types of ranching activities as a means of generating tax losses, rather than a profit-oriented venture. That was the issue in the Tax Court case, Ralph Wesinger, Jr., v. Commissioner of Internal Revenue [T.C. Memo 1999-372].
Mr. Wesinger owned a lucrative computer servicing business in San Jose, California. He purchased two parcels of unimproved land and started a cattle ranch. He had some experience helping out occasionally on two dairy farms near where he grew up.
He did not seek any professional assistance at the time he purchased the ranch as to its suitability for cattle ranching. He had no formal business plan detailing how a profit was to be made from the ranching operations. His plan was to buy, raise and sell cows. However, he learned that the grasses on the land would not support the cattle.
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