Horse Farming Activity and Automobile Dealerships are Separate Undertakings

Posted on March 31, 2015

In a recent Tax Court case, the Court held that a taxpayer’s horse farming activity was separate and apart from his automobile dealership and could not be characterized as a single activity.

The taxpayer raised and trained Arabian horses on a farm that they owned. However, the horse farming activity never made money and always resulted in a loss. The taxpayer also sold cars at his automobile dealership and made money in that venture. The taxpayer attempted to cross-market the automobile activity and the horse farming activity and treated both businesses as a single activity.

Unfortunately, the Tax Court held in favor of the IRS, holding that the horse farming activity and automobile dealership businesses were separate undertakings. Worse yet, because the horse farming activity was not engaged in for-profit, the taxpayer could not deduct any of the expenses related to that activity.

Because the horse farming activity never made any money, Patrick T. Sheehan & Associates agrees with the Tax Court’s decision. What do you think?

Tax Tip: If you are running two businesses, irrelevant of their profitability, be sure to classify your business expenses separately.