In Clarence Mcdonald Leland, Jr. v. Commissioner, T.C. Memo 2015-240, the Tax Court held that an attorney practicing law in Jackson Mississippi who operated a farm in Texas materially participated in the farming activities for Code Sec. 469 passive activity loss purposes.

The court stated the following as part of its analysis:

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. [Footnote 3, see below]. 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. 1.469-5T(a)(3), Temporary Income Tax Regs., supra. 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 id. Accordingly, petitioner 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.

Footnote 3 stated:

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 Regs., supra.

See full case at Clarence Mcdonald Leland, Jr. v. Commissioner, T.C. Memo 2015-240.

Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.