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Issues: The IRS argued that LINE
Paradise Acres was not an active trade ITEMS
or business under Sec. 162(a) during
2015, as Antonyan had not carried out
any of the steps in his business plan, For these full stories plus the latest tax news, visit JournalofAccountancy.com and
his experiments with cacti and trees The Tax Adviser online.
notwithstanding. The taxpayers argued
that the organic farming certificate was What’s new for 2022 in federal taxes
not required for leasing the tract for Amortization of research and experimental expenditures takes
nonorganic farming and that Antonyan effect, as do final regulations on carried interests and the excise
had engaged prospective customers tax on compensation above $1 million to employees of exempt
interested in using it for dog breeding, organizations. A host of provisions expire.
farming cacti, and growing cannabis.
Holding: The Tax Court agreed with National taxpayer advocate details 2021 as ‘most challenging
the IRS and sustained its disallowance year’ ever
of car and truck and travel expenses. In her Annual Report to Congress and legislative recommendations, National
Even if executing the steps in his Taxpayer Advocate Erin M. Collins identifies the most serious taxpayer prob-
business plan was not necessary to rent lems, notably including IRS delays in processing returns and answering tax-
the property, Antonyan did not provide payer correspondence.
evidence other than his testimony to
establish he held it out for that purpose AICPA joins coalition seeking relief from IRS service challenges
or engaged with, or received offers Citing IRS backlogs, a broad and diverse representation of tax professionals and
from, potential customers. The court other stakeholders requests relief from tax penalties and automated compliance
further upheld the IRS’s disallowance actions.
of other startup costs, noting that under
Sec. 195(b), up to $5,000 per year of Updated FAQs address 2021 child tax credit and advance
such costs (reduced by the amount by payments
which they exceed $50,000 and with Reconciling advance child tax credit payments to the full-year credit on 2021
any remainder amortized over 180 returns is among topics tackled in a 21-page IRS fact sheet.
months), may be deducted, beginning
in the tax year and month in which the FAQs address calculation and reconciliation of recovery
trade or business begins. Again, because rebate credit
Paradise Acres had not begun as a The credit on 2021 returns takes into account the third economic impact payment
trade or business in 2015, the startup that taxpayers received during the year.
expenses could not be deducted either,
the court held. New R&D credit documentation requirements clarified
Observation: The case illustrates The IRS posts frequently asked questions about threshold information that must be
the importance when claiming busi- included with a refund claim on an amended return stemming from a Sec. 41 credit.
ness deductions of establishing that a
trade or business is active. As the court
noted, this is a facts-and-circumstances
determination for which courts have of tree-farming cases. The taxpayer in such as Keefe, T.C. Memo. 2018-28.
examined taxpayers’ intention of earning that case tested whether his land could Tests can include the taxpayer’s efforts
a profit, their regular and active involve- support a particular species of tree but to rent the property, maintenance and
ment in the activity, and whether the had not yet harvested existing trees or repairs performed on it, labor to manage
activity has “actually commenced.” planted new ones. One lynchpin for a the property or provide services to ten-
What suffices to cross the threshold farming business as a going concern ants, and collection of rent.
from “initial research into or investiga- therefore could be significant com- ■ Antonyan, T.C. Memo. 2021-138
tion of business potential” (McKelvey, mercial production and planting or
T.C. Memo. 2002-63) to applying such replenishing of crops or livestock. — By Paul Bonner.
research and exploiting the potential As for Antonyan’s intended rental of
may be best discerned by analogous farming plots, a number of cases have Paul Bonner can be reached at Paul.Bonner@
cases, such as McKelvey, one in a line analyzed when a rental business begins, aicpa-cima.com or 919-402-4434. ■

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