Nickerson v. Commissioner

700 F.2d 402 (7th Cir. 1983)

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Nature of the Case

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Facts

Nickerson (D) decided that his career in the youth-oriented advertising field was limited and that dairy farming was the most desirable means of generating income. After several years of searching, D bought an 80-acre farm for $40,000. One year later he purchased an additional 40 acres for $10,000. The farm was in a run-down condition, and most of the equipment was in need of repair or was obsolete. The tillable land was planted with 60 acres of alfalfa. D leased the land to a tenant farmer for $20 per acre and that the farmer would convert an additional ten acres per year to cultivation of a more profitable crop. The rent received from the farmer was the only income derived from the farm. D visited the farm on most weekends during the growing season and twice a month the rest of the year. It was a five-hour drive. During these visits, D worked the land or assisted neighborhood farmers. D concentrated his efforts on renovating an abandoned orchard and remodeling the farmhouse. D also read trade journals and spoke with the extension agent to gain more experience. D did not expect to make a profit from the farm for 10 years. D lost money in 1976-77 and did not keep formal books but did retain receipts and canceled checks. At the time of trial, D had not yet acquired any livestock or farm machinery. The farm was devoid of recreational equipment and had never been used to entertain guests. The tax court decided that these facts did not support D’s claim that the primary goal was to make a profit. D appealed.