March 21, 2022 - Douglas Myser

Tax Court ruled against startup farm. The Tax Court held that a taxpayer's farming venture was still in the startup phase in the tax year at issue and denied the claimed business expense deductions. Vardan Antonyan bought 10 acres in the Mojave Desert of Southern California, intending to develop it and rent parcels to farmers. Antonyan created a business plan for the development, which he called Paradise Acres, which included building a barn for the development, which included a certificate of compliance with organic farming standards from the U.S. Department of Agriculture, installing an irrigation system, and constructing a road to the tract. He began constructing a rainwater collection system and tank. Tax Court ruled against startup farm.

In 2015, Antonyan incurred expenses of beginning to build the barn and road, working on those projects only on weekends, since he continued working full time as an engineer. He and his wife filed joint income tax returns that included a net loss of more than $25,000 from Paradise Acres. The IRS disallowed certain expenses and he petitioned the Tax Court. Because Paradise Acres had not begun as a trade or business in 2015, the startup expenses could not be deducted. Antonyan did not provide evidence other than his testimony to establish he held it out for the purpose of it being a business, even though it was not in 2015. The case illustrates the importance when claiming business deductions of establishing the fact that a trade or business is in fact actually active. The intention of earning a profit is not the same as having an active business, as the Tax Court explained.

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