IRS Confuses Ranch Activity with Rodeo Activity

The Carson v. Commissioner Case was reported yesterday. The IRS bungled it badly.

The Tax Court release the Leslyn & Craig Carson v. Commissioner (#23086-21S) yesterday. The Carsons represented themselves and did a much better job than the IRS. The IRS would have likely won the case if they had presented it properly.

Let’s review the facts. Leslyn Carson’s mother inherited a quarter section of land in Oklahoma. She then transferred the land to a revocable trust and entered into an oral agreement with her daughter. The daughter and her family would live on the property, help raise the cattle and pay for many of the expenses. In return, the mother would report the cattle sales and perhaps some expenses and the daughter would report the remaining expenses.

Leslyn and Craig earned about $125,000 a year from wages and spent most of it on farming expenses and therefore paid no taxes. Of course, the IRS did not appreciate this and audited the returns.

They noted some earnings from their children’s rodeo activities, therefore the agent asserted that this is a hobby related to the rodeo, not the ranch.

The Tax Court noted that the IRS had ignored the ranching activities, therefore, found in favor of the taxpayers. A substantial majority of all expenses were ranch activities not the rodeo.

If the IRS had simply determined that there was a partnership between mom and daughter and then found that the allocations were not appropriate, then they might have won the case.

Reading between the lines, we believe the Court simply tossed the IRS case due to all hat and no cattle (I could not resist).