Leslyn Jo Carson & Craig Carson, Docket 23086-21S (March 22, 2023)

The Carsons deducted losses for several years on a Schedule F “livestock” activity. In 2017, Schedule F reported gross income of $2,741 in rodeo competition winnings and total expenses of $128,990. In 2018 Schedule F reported gross income of $8,063 ($1,867 compensation for the Carsons’ children’s labor and $6,196 in rodeo competition winnings) and total expenses of $133,929. The IRS proposed to treat the Schedule F activity as not engaged in for profit.

Leslyn Jo Carson’s mother owned a ranch that would eventually pass to Leslyn Jo after her mother’s death. Leslyn Jo agreed with her mother to contribute financially to the ranch. The ranch made money by selling cattle. Gross receipts for cattle sales were reported by her mother. For several years Leslyn Jo made substantial contributions to the ranch.

The IRS determined that the Schedule F activity was rodeo rather than ranching. That decision was based on the gross receipts reported on Schedule F primarily being rodeo competition winnings. The IRS ignored Leslyn Jo’s explanation that the expenses were for ranching activity pursuant to an agreement with her mother.

In a bench opinion by Judge Morrison, the Tax Court found that the expenses were related to ranching activity. Because the IRS had not argued that the ranching activity was not engaged in for profit, the court found that those expenses had not been challenged and could not be disallowed. The court also found that the IRS could not refocus its case midtrial and request the taxpayers to produce and sort documents of expenses related to the narrow rodeo activities.