Snagletooth-have tax question

[Bird Legs]

Client, he & wife are retired in the country. In Ausust of 2006 he bought 4 cows and a bull.
He wants to raise calves to sell.
He repaired his fences and put up an electric gate so they cannot get out.
With 4 cows and a bull will this be a farming operation or a hobby? Realizing that client may retain some of the calves to build up the herd.
Your comments on this will be greatly appreciated.
Thanks

[Snaggletooth]

Maybe

Bird Legs, maybe. How's that for a straight answer?

What kind of acreage is available for the cattle? Less than 10 acres would
be hard to support, in fact, 10 acres will barely support 4 cows and a bull.
A typical 100 acres in these parts might support 40 head, including calves.

What kind of investment is there in things other than the cattle? If there
is an investment in hay machinery and a tractor, the answer might be
different. Again, the size of the operation is relevant because small
acreage will not support an investment in equipment, and large acreage
would be almost impossible to control WITHOUT such equipment.

The scope of the operation is more important than the number of cattle.
All the factors have to be considered: for example 1000 acres of timber
will not support ANY cattle!

Your question also left up in the air any concrete answers as to whether they
plan to grow the herd. With 4 cattle having calves, this could grow to 12 cattle
in 2 years. However, if they are smart, they will not use the bull to breed his
own daughters, so another bull would be necessary at some point within the
2 years.

Sorry, wish I could be more definitive. In absence of any of the above facts,
if someone twisted my arm, I would have to say "no." But I'll have to confess,
I once reported a schedule F for a taxpayer who sold NO calves. However,
this guy had bought 80 acres, a tractor, hay baler, mower, etc. and was
holding his calves off the market.

Hope this helps!

[Bird Legs]

Thanks Snag.

Your response was very helpful. You raised some questions I had not thought of. Yes, he does have a tractor. He did buy a small amoung of feed. Apparently, he did have some hay growing that he could feed them.
He does have a barn, etc.
Best and thanks.

[OldJack]

For crying out load Snag... what more do you need than the fact that this man and woman are working full time breeding cattle and raising calves. That is a farmer if they are willing to call themselves farmers.

As to the 10 acres... bull... as far as being classified as a farmer, for tax purposes they can be a farmer with less than 1 acre if they buy the cattle feed and keep the cattle in a pen. About the only challenge the IRS has is when the farmer is making big money running a business in town and claiming a farm loss.

Its been quite a number of years since the IRS found out not to harass farmers. Politicians don't like the IRS messing with farmers.

Hey... it feels real good hollor'in at you again Snag.

[OldJack]

Client, he & wife are retired in the country. In Ausust of 2006 he bought 4 cows and a bull.
He wants to raise calves to sell.
He repaired his fences and put up an electric gate so they cannot get out.
With 4 cows and a bull will this be a farming operation or a hobby? Realizing that client may retain some of the calves to build up the herd.
Your comments on this will be greatly appreciated.
Thanks

You can use code §179 to write off the cows, the bull, gate, and the fences if he has other W2 or earned income in that first year. Otherwise, those things are regular farm depreciation deductions for Sch-F. There is no reason to consider this activity as a hobby.

[Snaggletooth]

Farm?

Bird Legs, you've heard from at least two of us - myself and Old Jack.

I stand on my previous comments, but I will acknowledge that the IRS is less prone to go after a Schedule F than they are a Schedule C.

One of the reasons is that it is so difficult for farmers to make money, unless they own huge spreads of land and a fortune in equipment. Arguing against a profit motive is more difficult for the IRS, and in spite of what you may read in the pubs, IRS does not prevail against farmers as much as they would have you believe. Telling the auditor you are appealing to his supervisor generally disarms them.

They CAN prevail, however, if the taxpayer is making tons of money on primary employment and is taking farm losses against this income.

Old Jack, one acre and one cow is not a farm for purposes of taking a tax loss.
Sorry.

[OldJack]

Old Jack, one acre and one cow is not a farm for purposes of taking a tax loss.
Sorry.

Snag... you are confusing land category with business operation. We were not talking about a "farm" we were talking about a "farmer" farming. There is no code or reg that says what size land is required or how many livestock are required to be classified as farming. In fact the farmer does not have to own any land. There is the profit motive, labor, factual type of activity, intent, and other factors I can't think of off the top of my head. One cow for breeding or dairy use can be farming for tax purposes and Sch-F. Minors with one cow on fathers land can file as a farmer. Then don't forget the profit 3 out of 5 years assumption of NOT hobby (safe harbor). The farmer can have farm losses for 3 straight years without the IRS being allowed to question if it is a hobby.

edit: changed 2 out of 7 to 3 out of 5. Sorry 2 of 7 is for horse business.