1987 U.S. Tax Ct. LEXIS 47">*47
Ps incurred expenses in connection with their jojoba plantation. They deducted and did not capitalize the expenses pursuant to
88 T.C. 894">*894 Respondent determined that petitioners are liable for deficiences in income tax for the years 1981 and 1982 in the respective amounts of $ 7,930 and $ 5,783, together with additions to tax under section 6653(a) 11987 U.S. Tax Ct. LEXIS 47">*48 in the respective amounts of $ 396 and $ 289, an addition to tax under section 6661 for the year 1982 in the amount of $ 578, and additions to tax for 1981 and 1982 under section 6621(c), Tax Reform Act of 1986 (formerly section 6621(d)). 2 Respondent determined that petitioners must capitalize farming expenses claimed on Schedule F for 1981 and 1982 in the respective amounts of $ 14,424 and $ 13,651.
The question presented is whether the activity of planting, cultivating, developing, maintaining, or growing jojoba plants involves "a grove, orchard, or vineyard in which fruits or nuts are grown" within the purview of
FINDINGS OF FACT
Petitioners, husband and wife, timely filed joint Federal income tax returns for the 1981 and 1982 tax years. Petitioners resided in Piedmont, California, when they filed their petition in this case.
88 T.C. 894">*895 On their 1981 and 1982 Federal income tax returns, petitioners deducted expenses incurred in the planting, cultivating, developing, maintaining, and growing of jojoba plants at their Imperial Jojoba Ranch, in the respective amounts of $ 14,424 and $ 13,651. The ranch, located in Niland, California, was planted from seed during 1981 and 1982.
Jojoba is a multibranched bush or shrub native to desert scrub vegetation of southern California and southwestern Arizona and the Baja California1987 U.S. Tax Ct. LEXIS 47">*49 and Sonora regions of Mexico. The jojoba oilseed is the item of economic importance produced by the jojoba plant. The seed produces a high-grade liquid wax that is a good substitute for sperm whale oil. The liquid wax or oil is considered to have potential use as a high-temperature lubricant and has been used in pharmaceuticals, especially cosmetics. The scientific name of jojoba is Simmondsia chinensis.
Jojoba seeds were not harvested at petitioners' ranch in economically viable amounts until 1986. The jojoba plant bears fruit as early as 2 to 3 years after planting. However, the plant does not produce an economically significant crop until its fourth or fifth year and it may take even longer to achieve significant yields for agricultural purposes and up to 8 to 12 years for maximum yields. Thereafter, a cultivated jojoba plant should bear productively for decades and some plants grown in the wild have lived up to 150 to 200 years.
Although jojoba plants originally grew wild, in their domestic and cultivated state they are grown in what is commonly referred to as "plantations" of rows spaced from 10 to 12 feet apart with plants at evenly spaced intervals of 4 to 5 feet.
Jojoba1987 U.S. Tax Ct. LEXIS 47">*50 is not considered a "field crop," a term applied to vegetables, grains, and plants such as cotton that are often grown on large acreages. Instead, jojoba is more properly classified as a perennial row crop.
The jojoba plant grows in a widely spreading state without regular pruning. It may grow to a height of 2 to 17 feet and a width of 2 to 30 feet depending upon cultivation practices.
88 T.C. 894">*896 A "fruit" in the botanical sense is a matured ovary of a flowering plant. All flowering plants, including the jojoba plant, produce botanical fruits. This includes plants commonly thought of as bearing vegetables, such as squash and cucumbers. All nuts are fruits, but not all fruits are nuts.
The jojoba plant produces a dry fruit in the form of a leathery, acorn-like, one-seeded capsule. The capsule dehisces (splits open) at maturity to release a relatively large seed averaging 0.7 inches and usually constituting more than 90 percent of the entire fruit by size. Although the fruit capsule is a necessary element in the production of the seed of the jojoba plant, it is the seed itself that is of economic importance.
OPINION
(b) Farming Syndicates. -- Except as provided in subsection (c), in the case of any farming syndicate (as defined in (1) which would be allowable as a deduction but for the provision of this subsection, (2) which is attributable to the planting, cultivation, maintenance, or development of such grove, orchard, or vineyard, and (3) which is incurred in a taxable year before the first taxable year in which such grove, orchard, or vineyard bears a crop or yield in commercial quantities, shall be charged to capital account.
By a stipulation1987 U.S. Tax Ct. LEXIS 47">*52 of partial settlement, the parties make it unnecessary for the Court in this case to consider a number of elements which are prerequisites to the application of
1987 U.S. Tax Ct. LEXIS 47">*53 Respondent contends that the jojoba plant produces a fruit grown in a plantation, and that a jojoba plantation "is included within or substantially consistent with the concept of" an "orchard" for purposes of classification under
For purposes of
Petitioners agree that the jojoba plant produces a "fruit" in the sense that all flowering plants produce botanical fruits. They contend, however, that the1987 U.S. Tax Ct. LEXIS 47">*54 economic crop produced is an oilseed, not a fruit or a nut. Petitioners further argue that jojoba seeds grow on bushes, not trees or vines. They therefore would conclude that a jojoba plantation is not a grove, orchard, or vineyard within the meaning of the statute and that the proposed regulation is invalid to the extent that it covers such a plantation.
First, we note that although final regulations command our respect (
At trial, petitioners presented three expert witnesses: Dr. Jules Janick, professor of horticulture at Purdue University, Dr. Robert Thorne, professor of botany at Rancho Santa Ana Botanical Gardens, Claremont College, California, and Dr. Vito Polito, professor of botany with the department of pomology, at the University of California at Davis. Respondent presented one expert, Dr. Rudolf Schmid, professor of botany at the University of California at Berkeley.
Respondent's case rested on the testimony of his expert, Dr. Schmid. However, Dr. Schmid did not support respondent's position. For instance, his report states:
Jojoba is a shrub or bush rather than a tree due to its relatively low stature and its lack of a distinctive main trunk. The literature invariably refers to jojoba as a "shrub" or a "bush", the latter being defined as a low, densely branched shrub. * * *
* * * *
The fruit of jojoba is
With these distinctions in mind, jojoba can be classified as a "fruit plant" or a "seed plant", the latter preferably because it is the seed rather than the fruit of jojoba that is of economic importance. By extension jojoba would be a "fruit crop" or a "seed crop", specifically an "oilseed crop" (term used in National Research Council, 1985:37) because 88 T.C. 894">*899 jojoba is economically valued for the oil content of its seeds. Jojoba is not a "nut plant" and hence it is not an example of a "nut crop".
* * * *
I see no relevance of the edibility of jojoba to its classification as a fruit or a nut.
* * * *
The terms "orchard" and "grove" are commonly applied to nut and fruit crops (
On cross-examination, Dr. Schmid reiterated that jojoba is most properly classified as a seed plant, specifically an oilseed plant. He then testified as follows:
Q. When you * * * viewed the petitioners' jojoba farm, were you in a jojoba orchard?
Q. Then by answering that you were in a jojoba plantation your answer would be that you were not in a jojoba orchard?
In short, respondent's expert's testimony did not differ in any material way from the testimony of petitioners' three experts.
Despite this unanimous expert testimony respondent urges, through a broad reading of the statute, that we adopt the position of the proposed regulation. He would have us hold that jojoba comes within
The latter contention is quickly disposed of. All experts, including respondent's own, testified that a plantation of jojobas is not1987 U.S. Tax Ct. LEXIS 47">*59 a grove, vineyard, or orchard. Respondent argues that the word "orchard" is vague and nontechnical, that jojoba bushes can grow as high as 17 feet, and that a 88 T.C. 894">*900 jojoba plantation "should be considered within or consistent with the concept of a fruit orchard for purposes of
A firmly established principle of statutory interpretation is that "the words of statutes -- including revenue acts -- should be interpreted where possible in their ordinary, everyday senses."
The ordinary meaning of orchard is a planting of fruit or nut trees. This is also the definition accepted by all the expert witnesses. We think this is the plain meaning of the statute, and therefore hold that a jojoba plantation is not a grove, orchard, or vineyard within the purview of
1987 U.S. Tax Ct. LEXIS 47">*60 We hold for petitioners.
1. Unless otherwise indicated all section references are to the Internal Revenue Code as in effect during the years in issue.↩
2. Respondent conceded in a stipulation filed at trial that there are no additions to tax due from petitioners for 1981 and 1982 under sec. 6621(c), 6653, or 6661.↩
3.
4. The question of whether petitioners are members of a farming syndicate, and whether petitioners were engaged in the planting, cultivating, maintaining, or developing a jojoba plantation are resolved by compromise. Likewise the parties agreed that the deductions in question (1) are allowable as a deduction but for the provisions of this subsection; and (2) are incurred in a taxable year before the first taxable year (1986) in which the jojoba plantation bore a crop or yield in commercial quantities.↩
5. But see
6. In light of our holding, we need not consider whether a jojoba plantation is a place where "fruit" or "nuts" are grown within the meaning of
