The Tax Court yesterday treated a tax lawyer/CPA’s farm as a hobby and upheld an accuracy-related penalty in Mitchell v. Commissioner, T.C. Memo. 2006-145 (7/6/06):

This is the third time that we have been asked to decide whether petitioner conducted the farming activity for profit. We held petitioner did not conduct the farming activity for profit in 1992 and 1993. Mitchell v. Commissioner, T.C. Summary Opinion 1998-200. We similarly held that petitioner did not conduct the farming activity for profit in 1995, 1996, and 1997. Mitchell v. Commissioner, T.C. Memo. 2001-269….Respondent argues, and we agree, that, absent substantial changes in its operation, the farming activity was not conducted for profit pursuant to section 183.

Petitioner is an accountant and lawyer. He represents clients before the IRS and is a member of this Court’s bar. He is conversant with section 183 and the regulations. Despite all this, petitioners deducted farm losses even though petitioner still had not manifested an actual and honest objective of making a profit from the farm during 1998 and 2000. We find that petitioners did not act in good faith in claiming Schedule F farming losses and their underpayments were not due to reasonable cause. Petitioners disregarded rules or regulations by deducting the net losses from the farm. We conclude that petitioners are liable for the accuracy-related penalty.