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Keeping Corporate Records Pays (Even If It Is A Hassle)

Interesting decision below:

Taxpayers Engaged in Horse Breeding Activity with Profit Objective; Losses Deductible (Dennis, TCM)

A married couple engaged in a horse breeding activity with the intent of making a profit and were entitled to deduct their losses from the activity for several tax years. Overall, the couple carried on the activity in a businesslike manner by having a business plan and executing it, by maintaining financial records and books for the activity and using accounting software to track expenses, by having separate personal and business accounts, by using different methods of advertising, and by changing operating methods and abandoning unprofitable ones. In addition, the husband sought advice from knowledgeable individuals and developed veterinary and training skills; the couple did not derive pleasure from the activity yet spent vast amounts of time on it; and the couple did not have other substantial sources of income. Although the husband expected that the land used for the activity would appreciate, this one factor did not negate a finding of a profit objective. Finally, although the couple had a history of losses from the activity, the losses were incurred during the start-up phase of the operation and were impacted by an unforeseen drought that increased the cost of feeding the horses.

J.L. Dennis, TC Memo. 2010-216, Dec. 58,350(M)

The full decision can be found here.


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