Page 165 - TaxAdviser_2022

TAX TRENDS

Analysis of and reflections on

recent cases and rulings.

Author: employees also advised her on market-
James A. Beavers, CPA, CGMA, Gains & Losses ing and bookkeeping. While Jennifer
J.D., LL.M. apparently was able after some years to
Prior business success lends keep the doors open without her father’s
credence to donkey breeder’s financial support, the business showed a
profit motive net operating loss on its tax returns from
The Tax Court held that the owner of a 2008 to 2019.
large investment management firm and In 1987, Huff bought a 31.35-acre
Taxpayers had a his wife who conducted a sideline min- tract of farmland in New Jersey. Later,
profit motive iature donkey breeding business had a he bought a 7.5-acre tract adjoining
that property on which Jennifer and her
profit motive for the activity as required
for their by Sec. 183 and therefore could deduct husband lived. In 2004, Huff formed
donkey-breeding the losses from the activity for the years Ecotone, a partnership he owned with
activity; lien held at issue. his wife, which according to its operat-
ing agreement was organized for agri-
invalid because Background cultural, equestrian, and equine purposes.
In 2010, Huff began looking for a use
settlement officer William Huff was the founder of the for his farmland. To this end, he talked
investment management firm W.R.
did not properly Huff Asset Management Co. LLC to Arthur Papetti, a fellow businessman.
verify that notices of (Huff Asset Management). Using a Papetti was primarily in the egg busi-
deficiency had been research-driven investment philosophy ness, but he also had extensive experi-
ence in the field of miniature donkeys
implemented by Huff, the company
issued to taxpayer was highly successful, at one point hav- and their breeding. Papetti beguiled
and sent to his last ing approximately $25 billion in assets Huff with talk of the considerable prof-
its to be made by breeding high-quality
under its management. This made Huff
known address. an extremely wealthy man, with Forbes miniature donkeys.
magazine reporting his 2005 net worth Huff took an interest in the idea and
at $750 million. had his research team at Huff Asset
Huff had one child, a daughter Management look into the practicalities
named Jennifer. At her request, Huff involved in miniature donkey breeding.
started a dog grooming business for her. The team did extensive research on
Huff, besides providing funding, was miniature donkey nutrition and hus-
active in the startup, picking the location bandry. As part of this research, Huff PHOTO BY ARCHEOPHOTO/ISTOCK
of the business, negotiating the lease Asset Management employees talked to
for its premises, and paying the cost to various veterinary and other specialists.
construct the necessary facilities. He and Huff’s research also made him aware of
some of his Huff Asset Management how a breeding venture could qualify as

56 March 2022 The Tax Adviser