Equine Tax Law

Tax Strategy for Horse and Livestock Owners

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People in the livestock and horse industries are already hardpressed with IRS audits and difficult rules requiring the showing of the intention to make a profit despite ongoing losses. The IRS Commissioner has said the IRS is determined to be more aggressive going after Americans who do not file tax returns, overstate their deductions, or who fail to report their offshore accounts, as well as farmers and ranchers who exaggerate depreciation and other deductions. .

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Tax Court Case Emphasizes Importance of Professional Advice

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A recent case that seemed to rule correctly against a taxpayer was the Tax Court decision holding against Sandra J. Brannon of Southwest Texas with regards to her quarter horse breeding activity.  [Brannon v. Commissioner IRS, TC Memo 2000-76.]  The case also denied her depreciation deductions with respect to 4 emus because she was unable to prove she had purchased an interest in them, and so could not show that she had a tax basis in the animals. .

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Tax Case Holds In Favor of Virginia Couple

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Otis and Alma Jordan of Amissville, Virginia persuaded the Tax Court that their horse racing and breeding activity was engaged in for profit. The couple lived on a 20-acre farm on which they constructed a new barn and made other significant improvements.  They owned several thoroughbred race horses, and acquired their first race horse in l986.  They also owned six broodmares which they kept on the farm. .

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Stallion Syndications Revisited

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Stallion Syndicates have been a popular vehicle for people engaged in breeding activities for over 40 years.  This is a mode of co-ownership that applies to all types of horses in all breeds. During the 1980s, many people syndicated high quality stallions as investment and tax strategies. .

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An IRS Weapon: The Material Participation Test

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Often enough the IRS will “trick” taxpayers by questioning whether they satisfy the Material Participation Test.  This happens if the IRS concedes that your farm, livestock or horse activity is conducted for profit under the hobby loss rule.  That in itself is usually a big victory.  But it can turn into a dark victory if the IRS then says that your losses are “passive” and cannot be deducted against your main source of income, because you do not materially participate in the venture. .

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