Unreimbursed Partnership Expense

[Joe Btfsplk]

My client acquired a 50% interest in an LLC which is in the cattle business.

Previously this client had a horse-raising business. This year he had a lot of horse-related expenses but no income.
When I inquired, I was told that he had not bought or sold any horses this year and was now using them to round up and heard the cattle.

My question is: Could he discontinue reporting them on Schedule F and show them as Unreimbursed Partnership Expense (UPE) for the LLC?

[Brad Imsdahl]

I don't see any reason why he can't.

[cpadan]

I don't see any reason why he can't.

Said Brad as he rode off into the sunset.

Actually I think you need to look at the facts and circumstances. How big is this ranch and how many cows to they have? And how much time does he actually spend rounding them up?

Then, what are the horse breeding expenses and how are you going to apply them? A horse breeding operation usually consist of brood mares, stud(s), and colts which take several years to get into working condition. Which of these is he using to round up the cattle?

And how are you going to justify the other expenses such as barns, fencing, hay, equipment, trailers and pickups (which may or may not have lots of chrome)? I don't believe this is a simple yes or no question and the IRS will not be easily convinced.

[Joe Btfsplk]

You have some good points

Said Brad as he rode off into the sunset.

Actually I think you need to look at the facts and circumstances. How big is this ranch and how many cows to they have? And how much time does he actually spend rounding them up?

Then, what are the horse breeding expenses and how are you going to apply them? A horse breeding operation usually consist of brood mares, stud(s), and colts which take several years to get into working condition. Which of these is he using to round up the cattle?

And how are you going to justify the other expenses such as barns, fencing, hay, equipment, trailers and pickups (which may or may not have lots of chrome)? I don't believe this is a simple yes or no question and the IRS will not be easily convinced.

As you stated, it takes several years and not every horse is involved in the rounding up and herding. A lot of the expense is for depreciation and other things which would have to be calculated in the tax program as if it were a separate return then entered as UPE.

The limited experience I have had in dealing with clients in this business indicates that several years of nothing but expenses are involved and the objective is to build up the number of horses and train them with sales postponed for several years.

I'll probably take your advice and leave it on Schedule F.