T.C. Memo. 2015-240



                        UNITED STATES TAX COURT



  CLARENCE MCDONALD LELAND, JR., AND MYNA GREEN LELAND,
   Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 17625-13.                        Filed December 14, 2015.



      Clarence McDonald Leland, Jr., and Myna Green Leland, pro sese.

      Edwin B. Cleverdon and Horace Crump, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      NEGA, Judge: By notice of deficiency dated April 30, 2013, respondent

determined deficiencies of $5,066 and $10,244 in petitioners’ 2009 and 2010

Federal income tax, respectively, and accuracy-related penalties of $1,013 and
                                         -2-

[*2] $2,049 for tax years 2009 and 2010, respectively, under section 6662(a).1

The issues for decision are whether (1) the passive activity loss rules under section

469 limit petitioners’ loss deductions for tax years 2009 and 2010, and (2) whether

petitioners are liable for accuracy-related penalties pursuant to section 6662(a).

                               FINDINGS OF FACT

      Some of the facts have been stipulated and are so found. Petitioners resided

in Mississippi at the time they filed their petition. References to petitioner in the

singular are to Clarence McDonald Leland, Jr.

      Petitioner is an attorney practicing in the Jackson, Mississippi, metropolitan

area. Petitioner is also trained as an electrical engineer. In 2004 petitioner

purchased a 1,276-acre farm in Turkey, Texas. In 2005 petitioner entered into a

crop share arrangement with Clinton Pigg, a farmer local to Turkey. In

accordance with their arrangement, Mr. Pigg has complete responsibility for

planting and harvesting crops, and petitioner has complete responsibility for

maintaining the infrastructure of the farm.

      Of the 1,276 acres, approximately 130 are irrigated and are used by Mr.

Pigg for planting and harvesting crops. In 2009 Mr. Pigg spent six hours planting

      1
       All section references are to the Internal Revenue Code in effect for the
years at issue. All Rule references are to the Tax Court Rules of Practice and
Procedure. All monetary amounts are rounded to the nearest dollar.
                                        -3-

[*3] cotton on 120 acres. Before and after planting, he spent a total of three hours

spraying the cotton field over the course of two sprayings. Mr. Pigg checked on

the farm weekly over the course of 3.5 months, spending approximately 15-20

minutes at the farm each time. It took Mr. Pigg 16 hours to harvest all of the

cotton planted in 2009. In total, Mr. Pigg worked 29-30 hours on the farm in

2009. In 2010 Mr. Pigg sprayed and planted 60 acres, spending approximately

four hours in total on both tasks. The cotton did not develop in 2010, and Mr.

Pigg subsequently abandoned the crop. Petitioner and Mr. Pigg talked twice

monthly during 2009 and 2010, but there is no evidence in the record as to the

time spent on their conversations.

      Maintaining the 1,276-acre farm requires petitioner to perform a lot of long,

hard work. Petitioner performs most of these tasks himself, but he sometimes has

assistance from his son or a friend, Steve Coke. Aside from petitioner, Mr. Pigg,

Mr. Coke, and petitioners’ son, no individuals perform any tasks on the farm.

Petitioner visits the farm several times each year in order to perform necessary

tasks, commuting approximately 13-16 hours each way, including the time it takes

to load equipment onto his trailer. The farm has approximately 6-8 miles of

perimeter roads and 18-20 miles of interior roads that must be bush hogged and

disced regularly in order to remain passable. A Bush Hog is a device that is pulled
                                        -4-

[*4] behind a tractor to cut vegetation and clear land. Discing involves churning

and plowing soil to uproot any existing vegetation. Trees and brush that grow

near the roads must be controlled through spraying and chopping down limbs that

protrude onto the roadways. Because high winds can erode soil on the roads,

wheat must be planted each fall to prevent erosion on the roads and on acreage

that is not part of the 130 acres planted and harvested by Mr. Pigg. Almost all of

the roads have fences running parallel that must be maintained.

      Wild hogs are a continuing problem at the farm. They dig underneath

fences to get to edible crops and have dug up and broken water lines on the farm.

In a year before the tax years 2009 and 2010, wild hogs ate 250,000 pounds of

peanuts that petitioner and Mr. Pigg had grown on the farm. As a result, petitioner

has to spend significant time controlling the wild hog population, which he

accomplishes through hunting and trapping. Petitioner usually hunts hogs for

three hours each morning and afternoon while at the farm, for a total of six hours

per day. In addition, he spends time building traps and baiting them with corn

millet and Kool-Aid to lure hogs to a specific area, where he waits in a tripod

stand with semiautomatic weapons in order to eradicate them.

      Petitioner also must maintain farm equipment regularly. Parts on tractors,

Bush Hogs, and water lines must be replaced. Tractor tires regularly go flat and
                                         -5-

[*5] must be repaired or replaced. When petitioner visits the farm, he stays in a

small travel trailer that also requires some maintenance. Each time petitioner

leaves, he cleans the floor of the trailer and drains the water lines and adds

antifreeze to prevent them from freezing. Additionally, petitioner keeps an old

truck at the property; each time he leaves, he disconnects the batteries on the truck

and on any tractors that remain at the farm.

       Petitioner did not keep contemporary records of time he spent at the farm in

2009 and 2010. However, he reconstructed his records in preparation for trial by

reference to a calendar he keeps at his law practice and credit card receipts and

invoices for various purchases related to the farm activity. Petitioner provided

logs to the Court detailing time spent working at the farm. Petitioner also credibly

testified as to his activities at the farm, including the hours he spent each day on

various tasks, such as hunting hogs and rebuilding roads. According to his

records, petitioner spent 359.9 hours in 2009 and 209.5 hours in 2010 on farm-

related activities.2

       2
        The logs petitioner provided reflect that he spent 372.9 hours and 212.5
hours in 2009 and 2010, respectively, working on the farm. We have reduced the
hours because of mathematical discrepancies and to subtract time petitioner listed
for attending church in Turkey, Texas. Attending religious services is not part of
the farming activity, and therefore any hours petitioner spent either traveling to or
at church cannot count toward the hours spent materially participating in the
                                                                        (continued...)
                                        -6-

[*6] Respondent mailed petitioners a notice of deficiency on April 30, 2013, that

determined deficiencies of $5,066 and $10,244 in petitioners’ 2009 and 2010

Federal income tax, respectively. The deficiencies were attributable to

respondent’s limiting loss deductions from the farming activity under section 469.

Additionally, the notice of deficiency determined accuracy-related penalties of

$1,013 and $2,049 for tax years 2009 and 2010, respectively, under section

6662(a).

                                    OPINION

I.    Burden of Proof

      In general, the Commissioner’s determination as to the taxpayer’s tax

liability is presumed correct, and the taxpayer bears the burden of proving

otherwise. See Rule 142(a); Welch v. Helvering, 

, 115 (1933). This

burden may shift to the Commissioner if the taxpayer introduces credible evidence

with respect to any relevant factual issue and meets other conditions, including

maintaining required records. See sec. 7491(a). We decide this case on

the preponderance of the evidence and accordingly need not address whether the




      2
        (...continued)
activity.
                                          -7-

[*7] burden of proof has shifted. See Estate of Bongard v. Commissioner, 

, 111 (2005).

II.   Petitioner’s Farming Activity

      Section 469(a)(1) limits the deductibility of losses from certain passive

activities of individual taxpayers. Generally, a passive activity is any activity

which involves the conduct of any trade or business and in which the taxpayer

does not materially participate. Sec. 469(c)(1). A taxpayer is treated as materially

participating in the activity only if the taxpayer is involved in the operations of the

activity on a basis which is regular, continuous, and substantial. Sec. 469(h)(1).

      The regulations provide seven exclusive tests for material participation in an

activity. Sec. 1.469-5T(a), Temporary Income Tax Regs., 53 Fed. Reg. 5725-5726

(Feb. 25, 1988). An individual will be treated as materially participating in an

activity for purposes of section 469 if and only if: (1) the individual participates

in the activity for more than 500 hours during such year; (2) the individual’s

participation in the activity for the taxable year constitutes substantially all of the

participation in such activity of all individuals (including individuals who are not

owners of interests in the activity) for such year; (3) the individual participates in

the activity for more than 100 hours during the taxable year, and such individual’s

participation in the activity for the taxable year is not less than the participation in
                                           -8-

[*8] the activity of any other individual (including individuals who are not owners

of interests in the activity) for such year; (4) the activity is a significant

participation activity for the taxable year, and the individual’s aggregate

participation in all significant participation activities during such year exceeds 500

hours; (5) the individual materially participated in the activity for any 5 taxable

years (whether or not consecutive) during the 10 taxable years that immediately

precede the taxable year; (6) the activity is a personal service activity, and the

individual materially participated in the activity for any 3 taxable years (whether

or not consecutive) preceding the taxable year; or (7) based on all of the facts and

circumstances, the individual participates in the activity on a regular, continuous,

and substantial basis during such year. 

may prove his or her participation in an activity by any

reasonable means. 

53 Fed. Reg. 5727. Contemporaneous daily

time reports, logs, or other similar documents are not required if the taxpayer is

able to establish the extent of his participation by other reasonable means. 

may include, but are not limited to, the identification of

services performed over a period of time and the approximate number of hours

spent performing such services during such period, based on appointment books,

calendars, or other narrative summaries. 

“reasonable means” is
                                         -9-

[*9] interpreted broadly, and temporary guidelines may not provide precise

guidance. Goshorn v. Commissioner, T.C. Memo. 1993-578. However, a

postevent “ballpark guesstimate” will not suffice. See Lee v. Commissioner, T.C.

Memo. 2006-193; Goshorn v. Commissioner, T.C. Memo. 1993-578.

      Petitioner’s reconstructed logs, his receipts and invoices related to farm

expenses, and his credible testimony are all reasonable means of calculating time

spent on the farming activity during tax years 2009 and 2010. Petitioner’s records

and testimony establish that he spent 359.9 hours in 2009 and 209.5 hours in 2010

on farm-related activities.3 As noted, a taxpayer is treated as having materially

participated in an activity if the taxpayer participates in the activity for more than

100 hours during the taxable year and the taxpayer’s participation in the activity

for the taxable year is not less than the participation of any other individual. Sec.


      3
        Respondent’s main objection to petitioner’s reconstructed logs was that
they were not prepared contemporaneously with the activity. Sec. 1.469-5T(f)(4),
Temporary Income Tax Regs., 53 Fed. Reg. 5727 (Feb. 25, 1988), does not require
contemporaneous records, and we are satisfied that petitioner has established
material participation through other reasonable means. Respondent did not
dispute petitioner’s inclusion of travel time in his reconstructed logs. The facts of
this case establish that petitioner’s travel time was integral to the operation of the
farming activity rather than incidental. See Shaw v. Commissioner, T.C. Memo.
2002-35. We are also satisfied that petitioner’s purpose in traveling long distances
to and from Turkey, Texas, was not to avoid the disallowance, under sec. 469 and
the regulations thereunder, of any loss or credit from the farming activity. See sec.
1.469-5T(f)(2)(i), Temporary Income Tax 

.
                                          - 10 -

[*10] 1.469-5T(a)(3), Temporary Income Tax 

. We are satisfied that

petitioner’s participation was not less than the participation of any other

individual, including Mr. Pigg, Mr. Coke, and petitioners’ son, during tax years

2009 and 2010. See 

materially participated in the

farming activity during tax years 2009 and 2010, and the deductions attributable to

that activity are not limited by section 469.

         Because we rule for petitioners on the deductibility of their losses under

section 469, we also find that they are not liable for the accuracy-related penalties

pursuant to section 6662(a) for tax years 2009 and 2010.

         In reaching our holding, we have considered all arguments made, and, to the

extent not mentioned above, we conclude they are moot, irrelevant, or without

merit.

         To reflect the foregoing,


                                                   Decision will be entered

                                         for petitioners.