World Round Up & Review Another Amazing Show Weekend.
What a fantastic event. The support by exhibitors, spectators, sponsors and volunteers was overwhelming. FQHR has really found its stride and all that participate, attend and support us should be very proud. We had well over 900 entries, making it a huge show weekend. Thank you to Bill and Vicki Austin for saving FQHR from the brink, Laci Jacobi for an excellent job in the office, Dan Feldman and Diann Vipond who did the announcing for both rings, and the committee for pulling it all together. There are so many people who step up to help and we appreciate all of you. We have a year to plan so if you have any suggestions for next year, please contact me: Susie Walton 5861 E. Rosebush Rd. Rosebush MI 48878. My first one is to replace the word "Review" with "Reunion" because after the first time you have been there, it really is more of a reunion than anything else. CLICK HERE and you will see the list of 2013 World Round-Up & Review Winners and Class-By-Class Results. Photos coming soon.
Tax Court Case Discusses “Market Study”
By John Alan Cohan, Attorney at Law
In the Tax Court case, Richard H. Daley, T.C. Memo l996-259, an Arizona surgeon was denied deductions with respect to his cutting horse activity. The Tax Court, which in recent years has become more and more hard-nosed, concluded that the activity was not conducted for profit within the relevant IRS Regulations.
A number of facts worked against Dr. Daley: (l) He entered the activity without the aid of a written market study; (2) the evidence suggested that his motive for entering the activity was recreational; (3) he never relied on a formal profit or business plan; (4) in managing the activity he used a ledger to record various transactions and events, and had a separate “drop” file for each horse--but failed to maintain them in a completely accurate manner; (5) while he claimed to have devoted l0-l2 hours per week to the horse activity, he was unable to substantiate this to the Court’s satisfaction.
The Court suggested there should have been “a formal market study prior to undertaking his horse activity.” Under this Court’s criteria, very few horse owners would pass muster. The opinion suggests that taxpayers in the horse industry are going to have to engage in a lot more of formalities insofar as documenting how they started the activity.
If you have a significant amount of losses you have a good chance of eventually being audited; it is therefore very important to document your compliance with IRS Regulations pertaining to the hobby loss rule.
Dr. Daley was unable to show that the he consulted with industry experts prior to entering the activity. He testified that he had such consultations, but the judge found his testimony lacking in credibility. There was no documentation to back him up. This case therefore amplifies the importance of establishing groundwork documentary evidence and preserving it.
It is important to maintain inventory records on each animal, including parentage, birth date, birth weight, and registration information. There should be a chart of horses owned and sold, with details. It is important to keep separate files on each horse.
If you are audited, it is important to immediately obtain legal assistance. Evidence of your businesslike purpose should be presented to the auditor in the most favorable light. Your business plan should be set forth in a clear and concise manner. How you eventually expect to make a profit should be made clear. If losses are due to unforeseen circumstances or setbacks, including disease or fluctuating market prices, you should maintain documentary evidence to prove these facts. The IRS also wants to see evidence that you keep abreast of industry practices and that you investigate the possibility of changing or abandoning current methods of operation in an effort to mitigate losses.
In many cases, taxpayers have convinced the Tax Court that their horse activity is a business rather than a hobby despite over two decades of losses. In those cases the taxpayers had good evidence showing the businesslike manner in which they operated their venture. The horse owners who come through well in audits usually have a working knowledge about genetic principles and other elements of animal husbandry. They usually strive to raise high quality animals, and have a plan on how to market them or otherwise make a profit.
[John Alan Cohan is a lawyer who has served the horse, livestock and farming industries since l98l. He serves can be reached by telephone at (3l0) 278-0203 or via e-mail at moc.loa@nahoCnalAnhoJ. His website is www.johnalancohan.com.]
Lazy Rafter Quarter Horses
Tom & Shirley May are owners of Lazy Rafter Quarter Horses, located south of Hutchinson, KS on the family farm established in 1904. Read More
Just a note to let you know what a blessing it has been for Kaye to be able to participate in the foundation shows locally. She works so hard practicing and tells everyone how proud she is to be able to show her horse. Read More