TAX COURT OPINION

Case: Wesley E. Young & Janet S. Young
Docket Number: 2800-18
Judge: Marvel
Opinion Type: memo
Filed: 09/22/2025
Pages: 43

United States Tax Court T.C. Memo. 2025-95 WESLEY E. YOUNG AND JANET S. YOUNG, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent __________ Docket No. 2800-18. Filed September 22, 2025. __________ Jeffery D. Trevillion, Jr., for petitioners. William F. Castor, Vassiliki Economides Farrior, and Tyler A. Gilmore, for respondent. MEMORANDUM FINDINGS OF FACT AND OPINION MARVEL, Judge: Petitioners, Wesley E. Young and Janet S. Young (Youngs), contest respondent's determination of deficiencies and section 66621 accuracy-related penalties for their 2013 and 2014 taxable years (years at issue). In a Notice of Deficiency dated November 13, 2017, respondent determined that the farming activity at Pecandarosa Ranch was not an activity engaged in for profit within the meaning of section 183 and disallowed deductions attributable to it that the Youngs claimed for the years at issue. The Youngs argue that they operated Pecandarosa Ranch for profit and that accuracy-related penalties are not warranted because they acted with reasonable cause and in good faith. We agree with respondent that the Pecandarosa Ranch activity 1 Unless otherwise indicated, statutory references are to the Internal Revenue Code, Title 26 U.S.C. (Code), in effect at all relevant times, regulation references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and Rule references are to the Tax Court Rules of Practice and Procedure. Some monetary amounts have been rounded to the nearest dollar. Served 09/22/25 was not an activity engaged in for profit during the years at issue and that accuracy-related penalties are warranted. FINDINGS OF FACT Some of the facts have been stipulated and are so found. The First Stipulation of Facts, First Supplemental First Stipulation of Facts, and their accompanying Exhibits are incorporated herein by this reference. The Youngs resided in Oklahoma when they timely filed their Petition.2 We will provide separate overviews of Mr. Young's and Ms. Young's backgrounds because, as discussed infra, they met and married each other just before the years at issue. I. Mr. Young Mr. Young was born in 1962 and grew up in Okmulgee, Oklahoma. He did not grow up on a farm, but he was a member of the Future Farmers of America in high school. Mr. Young has a varied work history encompassing oil drilling, pecan harvesting, hay baling, and ranch management, including working with cattle and horses. Beginning at age 17, he worked at Bill Wadley & Son Drilling Co. for about 15 years,3 initially drilling oil wells but later harvesting pecans and baling hay. As part of his pecan harvesting duties, he picked up fallen tree limbs, used a limb rake, operated a harvester, worked at a pecan cleaning table, and shook pecan trees.4 Mr. Young then worked for Hughes Cattle Co. at Dillingham Ranch in Okmulgee for about two years, which entailed working with cattle and baling hay. After the owners of another ranch, Buford Ranch, bought Dillingham Ranch, Mr. Young left Hughes Cattle Co. to work for Buford Ranch for a few years, working with cattle and horses and baling hay. Mr. Young then returned to Hughes Cattle Co. working for about 13 years at Robson Ranch in Catoosa, Oklahoma. At Robson Ranch he worked with cattle and managed over 2,000 wild horses under a 2 Unless otherwise agreed by the parties in writing, venue for an appeal is the U.S. Court of Appeals for the Tenth Circuit. See § 7482(b)(1)(A). 3 Mr. Young's employment with Bill Wadley & Son Drilling Co. was not entirely continuous, however. He credibly explained that "there [were] periods in there where there [were] no wells to drill, and we would have to draw unemployment." 4 In Mr. Young's experience, pecan harvesting typically occurred in October or November but could occur as late as January, and both the timing and volume of a pecan harvest depended on the weather. contract that Hughes Cattle Co. had with the Bureau of Land Management. Mr. Young had engaged in team roping, a type of rodeo event, for over 20 years as of the years at issue. The object of team roping is for two horsemen (one header and one heeler) to work together to rope a steer's head and heel in the fastest time possible.5 Team roping competitions offer prize money or various other prizes, such as belt buckles and horse saddles, and Mr. Young wore one such belt buckle at trial. Most of the team roping competitions in which Mr. Young participated lasted multiple days. II. Ms. Young Ms. Young was born in 1963. She began working at the Oklahoma Employment Security Commission (OESC) in 1987 as a clerk. In 1988 she married Dale Todd, whom she had met in 1983. At the time of Ms. Young's marriage to Mr. Todd, Mr. Todd and his father worked together running ETI, Inc. (ETI), an Oklahoma corporation formed by Mr. Todd's father in 1980. ETI manufactured and refurbished airplane parts, and at all relevant times it was based in Tulsa, Oklahoma, and was an S corporation6 for federal income tax purposes. Ms. Young became a claims adjuster at some point while working for the OESC. She left that position in 1993 and went back to school at Langston University in Oklahoma. While at Langston University, Ms. Young took Accounting I and Accounting II, which together totaled six credit hours. She also took Business Law and other classes pertaining to business management. She received a bachelor's degree in business management in 1995. After college Ms. Young obtained a workers' compensation adjuster license and worked for a third-party workers' compensation insurance administrator for about three years. She then left the thirdparty administrator to lead the workers' compensation division at Saint 5 We have previously described the sport of team roping in detail. See Gallegos v. Commissioner, T.C. Memo. 2021-25, at *3-5. 6 An S corporation is governed under the rules in subchapter S of chapter 1 of subtitle A of the Code. S corporations are not generally themselves subject to federal income tax but, like partnerships, are conduits through which income flows to their shareholders. See § 1366; Gitlitz v. Commissioner, 531 U.S. 206, 209 (2001) ("Subchapter S allows shareholders of qualified corporations to elect a 'pass-through' taxation system under which income is subjected to only one level of taxation."). Francis Hospital in Tulsa, Oklahoma, where she worked for about six months. She subsequently worked for a staffing company for a short time. In 1998 Ms. Young passed series 7, 63, 65, and 66 exams and became a licensed stockbroker.7 She worked as a stockbroker from 1998 until either 2004 or 2005, when she sold her stockbrokerage business with the intent of assisting Mr. Todd with ETI. She did not begin working at ETI right away, however, and was unemployed for a couple of years. In July 2007 Mr. Todd purchased ETI from his father.8 At the time he purchased it, Mr. Todd had been overseeing ETI's day-to-day operations for at least ten years. Upon purchasing ETI, Mr. Todd became its sole shareholder and chief executive officer. Shortly after that, Ms. Young began working full time at ETI. At all relevant times Ms. Young oversaw ETI's accounting and human resources operations, and ETI used QuickBooks as its accounting system, including for maintaining a general ledger. In 2008 Mr. Todd and Ms. Young bought Pecandarosa Ranch for $2 million. At that time, Pecandarosa Ranch comprised 82.7 acres of real property in Rogers County, Oklahoma, and included a residence, a guest house, and a native pecan grove consisting of about 490 mature pecan trees. Before buying Pecandarosa Ranch, Mr. Todd and Ms. Young spoke with its then owners and their pecan harvester, Billy Crose,9 about the harvesting of the pecan grove. An ice storm had 7 The series 7 license, a general securities representative license, allows the licensee to sell almost any type of individual security. See Fleischer v. Commissioner, T.C. Memo. 2016-238, at *3 n.2. The series 63 license, the Uniform Securities Agent License, allows the licensee to transact business within a State and is required by every State. See id. The series 65 license is required to provide financial advice or services on a noncommission basis. See id. The series 66 license allows the licensee to advise clients on investments. See, e.g., Cisneros v. FirstMerit Corp., No. 14-cv-14893, 2016 U.S. Dist. LEXIS 14655, at *3 (E.D. Mich. Feb. 8, 2016). 8 Ms. Young repeatedly testified that both she and Mr. Todd bought ETI in 2007, but she also testified that Mr. Todd or "his trust" was the "sole shareholder" at the time of the purchase and that "from the time we bought it, he was the owner. He was [the] sole shareholder." The parties have stipulated that "[f]rom at least 2008 until his death, Mr. Todd was ETI's sole shareholder." ETI also reported on its Forms 1120S, U.S. Income Tax Return for an S Corporation, for 2008-10 that it had one shareholder and that Mr. Todd had a 100% ownership interest in ETI. The purchase agreement, if any exists, is not in the record. To the extent that Ms. Young testified that she purchased ETI or some portion of it in 2007, we do not credit that testimony because it is uncorroborated and contradicts other portions of her testimony. 9 Mr. Crose did not testify at trial. damaged the pecan grove in December 2007, and Ms. Young and Mr. Todd spent their first year of ownership clearing trees and limbs. Ultimately, there was no pecan harvest in 2008. Mr. Todd and Ms. Young joined the Oklahoma Pecan Growers Association in 2009 and subscribed to various periodicals, including the Georgia Pecan, Pecan South, and The Pecan Grower. From 2009-13 Mr. Crose continued harvesting pecans on Pecandarosa Ranch.10 Mr. Crose's compensation for his services was 50% of the pecans he harvested on the ranch. His compensation was lower than the typical rate of 70% of the harvest because the pecan grove was kept in good shape. Oklahoma began experiencing drought conditions in 2010, which ultimately continued through 2015. Separately, Mr. Todd received a cancer diagnosis on July 1, 2010. On September 14, 2010, Mr. Todd and Ms. Young conveyed Pecandarosa Ranch to the Janet Sue Todd 2004 Living Trust. Sometime after Mr. Todd was diagnosed with cancer, Ms. Young and Mr. Todd hired additional outside labor (i.e., laborers other than Mr. Crose) to assist with operating Pecandarosa Ranch. They incurred labor expenses of $15,255 during 2010 and $10,459 during 2011. Mr. Todd died in December 2011. Ms. Young became the sole shareholder of ETI and began managing ETI11 after Mr. Todd's death. At all relevant times, Ms. Young handled the business and administrative aspects of Pecandarosa Ranch. She did not make or keep a formal written business plan for Pecandarosa Ranch during 2008-12. 10 Although respondent has asked us to find that Pecandarosa Ranch employed Mr. Crose to harvest pecans from 2008 to 2014, the record is clear that there was no pecan harvest in either 2008 or 2014. 11 ETI's accountable manager for aviation regulatory purposes, however, is an individual other than Ms. Young. Cf. 14 C.F.R. § 145.3(a) (2025) (defining an accountable manager as "the person designated by the certificated repair station who is responsible for and has the authority over all repair station operations that are conducted under part 145, including ensuring that repair station personnel follow the regulations and serving as the primary contact with the" Federal Aviation Administration). Ms. Young credibly testified that "I can't change the way we repair an airplane part" and that with respect to "the actual work and how it's done, I would never change that." 6 2012 In early 2012 Ms. Young began Pecandarosa Ranch incurred labor expenses of $30,333 during [*6] III. construction of a 22,590-square-foot arena on Pecandarosa Ranch. The Youngs married in August 2012 although the record does not establish exactly when they met. Sometime in 2012 while still working for Hughes Cattle Co., Mr. Young started serving as an unpaid intern for his church, which included performing community service projects. In December 2012 Mr. Young provided Hughes Cattle Co. with notice of his intent to resign. 2012. One of the individuals hired was a hay baler. IV. 2013 and 2014 A January 18, 2013, appraisal by Southwest Valuation Service, Inc., valued Pecandarosa Ranch, including the arena, the Youngs' residence, and other improvements, at $2.75 million under the sales comparison approach or $2.718 million under the cost approach. The appraisal valued the land under the cost approach at $395,000 and the improvements at $2.323 million, $1.176 million of which related to the Youngs' residence and $399,500 of which related to the arena. Construction on the arena was completed in July 2013. Around the same time, Mr. Young's internship with his church ended, and he began working full time at Pecandarosa Ranch performing various tasks, including brush hogging, fixing fences, and servicing tractors. In other words, his role at Pecandarosa Ranch was that of a physical laborer. After starting to work at Pecandarosa Ranch, Mr. Young attended seminars conducted by the Oklahoma Pecan Growers Association. By his own account, Mr. Young enjoyed working at Pecandarosa Ranch. There was no pecan harvest in 2014 because Mr. Crose notified the Youngs late in the season that he would not harvest pecans for them that year, and the Youngs were unable to find a replacement harvester on short notice. Pecandarosa Ranch began marketing team roping practice as an offering in 2014. The Youngs resided on Pecandarosa Ranch during the years at issue. Ms. Young worked about 15 hours per week at ETI during that time, and Mr. Young (in addition to his ranching duties) took team roping lessons from Speed Williams, a world champion team roper.12 By his own account, Mr. Young enjoyed team roping. During the years at issue Mr. Young was a member of the following organizations: the United States Team Roping Championships, the World Series of Team Roping, and Allstar Team Roping. The Youngs were also members of the American Quarter Horse Association, the American Paint Horse Association, and the Pinto Association. During the years at issue the Youngs used a personal bank account for Pecandarosa Ranch, which was unincorporated and which the parties have stipulated was a sole proprietorship. The Youngs were physically active on Pecandarosa Ranch and, depending on the season, sometimes worked after dark. The Youngs did not track expenses with the goal of evaluating whether they could make a meaningful profit from Pecandarosa Ranch. Although Ms. Young provided invoices, receipts, and statements related to Pecandarosa Ranch to accountant Kathy Burch,13 who prepared the Youngs' income tax returns, the Youngs did not maintain a general ledger for Pecandarosa Ranch during the years at issue. At times not established by the record, Ms. Young or Ms. Burch prepared rudimentary spreadsheets of Pecandarosa Ranch's income and expenses, which the parties have stipulated to be profit and loss statements for the years at issue, based on those invoices, receipts, and statements. Ms. Burch used the spreadsheets in tax return preparation; there is no indication that the Youngs used them to inform their decision making or foster profitability. The 2013 spreadsheet attributed income of $3,036 to pecan harvesting and $300 to Mr. Young's team roping.14 The 2014 spreadsheet attributed income of $7,000 to the sales of three horses, $7,855 to cattle sales, and $4,035 to Mr. Young's team roping. The 2014 spreadsheet listed "Pecans," "Hay," and "Events" in the "Income" section but indicated there was zero income from them. The spreadsheets did not reflect income from any other source. The 12 Mr. Young also credibly testified that at some point he consulted with world champion team roper Buddy Hawkins, who advised him to be selective about his roping partners and to buy certain team roping videos. He further credibly testified that world champion horseman Tyler Magnus "came to the ranch" and that "hang[ing] around with better people . . . make[s] me a better roper." 13 Ms. Burch did not testify at trial. 14 The 2013 profit and loss statement recorded $8,341 of co-op patronage income. Nonetheless, we credit Ms. Young's testimony that it represented a partial rebate of interest payments the Youngs made on a loan from the Oklahoma Farm Bureau rather than income. We thus do not regard it as a source of revenue for Pecandarosa Ranch. spreadsheets also showed total expenses of $344,545 for 2013 and $270,407 for 2014. V. Events After the Years at Issue In 2015, the year respondent's audit began, see infra FINDINGS OF FACT Part VII, Ms. Young began using QuickBooks to track Pecandarosa Ranch's income and expenses on Ms. Burch's advice. On September 21, 2016, a member of Ms. Burch's firm organized Pecandarosa Ranch, LLC, with the Youngs as its managers and the Janet Sue Todd 2004 Living Trust as its sole member. In 2017 Pecandarosa Ranch, LLC, opened a business bank account with Bank of America and maintained the account through at least 2019. In 2019 a land title survey of Pecandarosa Ranch divided the property into two tracts: the residence tract, comprising about 31.94 acres, and the chapel tract, comprising about 50.76 acres. The division followed advice from the Youngs' accountants and attorneys that it would be better to divide Pecandarosa Ranch into separate tracts for liability purposes. The residence and the guest house were on the residence tract, and the native pecan grove was on the chapel tract. In November 2019 the chapel tract was conveyed to Pecandarosa Ranch, LLC. A November 1, 2019, appraisal of the residence tract valued it at $1.958 million under the cost approach or nearly $1.901 million under the sales comparison approach. The appraisal valued the land under the cost approach at $432,000 and the improvements at nearly $1.526 million.15 In a 14,892-square-foot event center on the chapel tract that included a banquet and reception hall and a wedding chapel. Before its completion, the Youngs secured an appraisal of the chapel tract dated April 17, 2020,16 valuing it as is at $2.45 million or with a prospective the Youngs completed 15 Over $1.105 million of the improvements related to the Youngs' residence. Other improvements included a four-year-old shop valued at $91,000, a four-year-old horse barn valued at $25,056, a two-year-old outdoor living area valued at $82,944, and a new shop valued at $62,500. 16 Although the parties stipulated that the appraisal of the chapel tract is "dated June 17, 2020," the record is clear that the appraisal is dated April 17, 2020, and that a letter referring to the appraisal and determining "that the construction is complete" is dated June 17, 2020. We disregard the stipulation to the extent it is 2020 construction of 16,213-square-foot event center at $3.73 million.17 Pecandarosa Ranch, LLC, obtained a $2.9 million loan from Regent Bank for the purpose of constructing the event center, as well as undertaking related projects, such as constructing new fencing and new roads to the event center. Pecandarosa Ranch, LLC promised to repay Regent Bank on a monthly payment schedule with equal monthly payments of $14,299 starting July 2, 2020. The Youngs and ETI guaranteed repayment of the loan, and Pecandarosa Ranch, LLC, conveyed a mortgage to Regent Bank on the chapel tract. Pecandarosa Ranch, LLC, maintained a bank account at Regent Bank from at least June 2020 through August 2021. In August 2023 the Youngs listed the residence tract for sale. The asking price was $2.75 million. The listing expired on February 9, 2024. At times not established by the record, cf. infra note 40, the Youngs advertised Pecandarosa Ranch's goods and services on its website and third-party websites. QuickBooks profit and loss statements for Pecandarosa Ranch are in the record for 2015-23 and for a small portion of 2024. According to those statements, the first time Pecandarosa Ranch received income18 from each of the following sources was in the following years: Year 2015 2015 2015 Source of Income Arena & Outside Grounds Hay-Large Hay-Small erroneous. Cf. Cal-Maine Foods, Inc. v. Commissioner, 93 T.C. 181, 195 (1989) (holding that we are not obliged to accept a stipulation between the parties when it is clearly contrary to facts disclosed by the record or there is substantial evidence contrary to it). 17 Of the $3.73 million appraised value upon the construction's completion, $380,000 related to the land and about $3.35 million related to improvements. 18 Although the 2014 spreadsheet lists "Hay" and "Events" in the "Income" section, it also indicates that Pecandarosa Ranch had zero income from those sources that year. As a reminder, the sources of income reflected on the spreadsheets for the years at issue related only to pecan harvesting, team roping, sales of horses, and sales of cattle. The table thus does not list the following sources of income that appear on the QuickBooks profit and loss statements: "Pecan Harvesting," "Pecans," "Team Roping," "Horse Sales," and "Livestock Sales." Nor does the table list a category in 2020 called "(Discount)," which carried a negative value. [*10] 10 Rental Items Boarding-Option 1 Boarding-Option 3 Pecan Wood Pecandarosa Cottage Sales-Miscellaneous Boarding-Option 219 Hay Harvesting Event Planning20 Pecandarosa Venue Miscellaneous- Boarding Miscellaneous-Venue Pecandarosa Petals 2015 2016 2016 2016 2016 2016 2017 2017 2018 2019 2020 2020 2022 2022 Pecandarosa Planning 2022 Sales-Other The record does not disclose when the Youngs began planning each of those sources of income or undertakings;21 in some cases, it also 19 The 2016 QuickBooks profit and loss statement listed "Boarding-Option 2" in the "Income" section but indicated there was zero income from it. 20 The 2017 QuickBooks profit and loss statement listed "Event Planning" in the "Income" section but indicated there was zero income from it. 21 Portions of the Youngs' testimony could be understood to suggest that Pecandarosa Ranch was performing some of the undertakings listed in the table during the years at issue although that testimony was neither sufficiently precise nor adequately corroborated by documentary evidence for us to make a finding to that effect. discloses little about the nature of the source of income or undertaking. The record is remarkably imprecise concerning the relationship, if any, of the above-listed sources of income or undertakings to the years at issue from an operational or planning perspective. VI. ETI Income and Pecandarosa Ranch Losses Ms. Young and (as applicable) Mr. Todd's or Mr. Young's Forms 1040, U.S. Individual Income Tax Return, for 2008-22 reported wage income totaling $2,942,958. Those returns also reported nonpassive passthrough income from ETI totaling $15,985,429 for the same years. None of the returns reported a loss from ETI. Ms. Young and (as applicable) Mr. Todd's or Mr. Young's Forms 1040 for 2008-22 also reported losses from Pecandarosa Ranch for all taxable years from 2008-22. The reported losses from those years totaled $2,953,041. For each year during 2008-22 the reported loss from Pecandarosa Ranch partially offset the reported ETI passthrough income, wages, or other income. For 2008-19 Ms. Young and (as applicable) Mr. Todd or Mr. Young reported the following information for Pecandarosa Ranch on Schedules F, Profit or Loss From Farming, of their Forms 1040: Year Gross Income Total Expenses Net Loss 2008 2009 2010 2011 2012 2013 2014 2015 - $2,313 20,972 40,308 15,447 11,677 22,381 37,345 $85,551 $85,551 32,065 58,326 103,155 78,333 269,333 328,274 172,535 29,752 37,354 62,847 62,886 257,656 305,893 135,190 [*12] 2016 2017 2018 2019 38,248 57,741 62,463 38,261 12 122,557 126,025 108,092 200,918 84,309 68,284 45,629 162,657 Total $347,156 $1,685,164 $1,338,008 For 2020 and 2021 the Youngs reported the following information for Pecandarosa Ranch on Schedules C, Profit or Loss From Business, of their Forms 1040: Year Gross Receipts Returns and Allowances Cost of Goods Sold Total Expenses Net Loss 2020 2021 $256,369 $7,250 $45,285 $1,075,414 $871,580 346,932 5,455 41,871 571,254 271,648 Total $603,301 $12,705 $87,156 $1,646,668 $1,143,228 For 2022 the Youngs reported a nonpassive loss of $471,805 from Pecandarosa Ranch, LLC. Pecandarosa Ranch, LLC, filed Form 1065, U.S. Return of Partnership Income, reporting (in addition to a $22,191 real estate rental loss) the following information: Year Gross Receipts Other Income Cost of Goods Sold Total Expenses Ordinary Net Loss 2022 $224,341 $20,950 $77,003 $617,902 $449,614 VII. Tax Reporting and Examination for the Years at Issue The Youngs timely filed their joint federal income tax returns for the years at issue. The Youngs reported that Pecandarosa Ranch's principal crop or activity was pecans.22 The 2013 Schedule F reported gross income of $11,677, total expenses of $269,333, and a net loss of $257,656 from Pecandarosa Ranch. The Youngs further reported the following breakdown of expenses for 2013: Expense Amount Depreciation $138,81223 Gasoline, fuel, and oil Insurance (other than health) Labor hired (less employment credits) Repairs and maintenance 242 6,822 3,885 56,094 Seeds and plants 28,804 Supplies 1,500 22 The parties, however, have stipulated only that "[d]uring 2008 through 2010, the principal farming activity on [Pecandarosa Ranch] was the raising and harvesting of pecans." The parties have not provided a stipulation about the principal activity occurring on Pecandarosa Ranch during the years at issue. Notably, Pecandarosa Ranch's reported principal crop, activity, business, or profession has shifted somewhat over the years. The 2017-19 Schedules F state that its principal crop or activity was "Hay/Pecans." The 2020-21 Schedules C state that its principal business or profession was "event venue." 23 The Youngs' claimed 2013 depreciation expense includes $87,018 of section 179 expenses for the full costs of acquiring the following machinery, equipment, and horses in 2013: (1) "7' Ground Hog Equipment" ($3,650); (2) "Heel-O-Matic Trainer" ($3,545); (3) "Horse Walker" ($26,608); (4) "Gates/Wiring" ($17,715); (5) Drifter Horse ($25,000); (6) Chili Horse ($4,500); (7) Big Daddy Horse ($5,500); and (8) Lucky Horse ($500). [*14] 14 Taxes Utilities Veterinary, breeding, and medicine Other expenses: Accounting expense Other expenses: Dues & subscriptions Other expenses: Farrier Other expenses: Professional fees Other expenses: Security Other expenses: Travel 2,459 5,214 3,683 1,246 455 4,745 2,500 401 12,471 Total $269,333 The 2014 Schedule F reported gross income of $22,381, total expenses of $328,274, and a net loss of $305,893 from Pecandarosa Ranch. The Youngs also reported the following breakdown of expenses for 2014: Expense Amount Depreciation $192,06424 24 The Youngs' claimed 2014 depreciation expense includes $157,640 of section 179 expenses for the full costs of acquiring the following machinery and equipment in 2014: (1) "2011 Platinum Trailer" ($108,000); (2) "Wylie 300 Gallon Sprayer" ($3,933); [*15] 15 Feed Gasoline, fuel, and oil Insurance (other than health) Mortgage (paid to banks, etc.) Repairs and maintenance Supplies Taxes Utilities Veterinary, breeding, and medicine Other expenses: Accounting expense Other expenses: Dues & subscriptions Other expenses: Mileage Other expenses: Outside services Other expenses: Registration fees 24,427 1,065 7,614 22,522 1,663 9,916 969 4,968 6,498 329 1,235 2,957 30,893 16,460 (3) "Dakota Safe" ($3,118); (4) "Harrow Chain" ($775); (5) "DR Wood Splitter" ($2,074); (6) "Case 1070 Tractor" ($5,000); (7) "John Deere Square Bailer" ($7,000); (8) "Savage 7218 Limb Rake" ($4,715); (9) "Savage Harvester" ($10,000); (10) "2548 Shaker" ($3,025); and (11) "4224 Cleaner" ($10,000). [*16] 16 Other expenses: Security Other expenses: Travel 360 4,334 Total 328,274 In June 2015 Revenue Agent Terry Hagelberg (RA Hagelberg) was assigned to examine the Youngs' income tax returns for the years at issue.25 On August 5, 2015, RA Hagelberg interviewed Ms. Burch. During the interview Ms. Burch stated that the Pecandarosa Ranch activity included pecan farming, horse training, team roping, rental of the arena for events, and a bed and breakfast. On May 25, 2016, during a three-way telephone call among RA Hagelberg, Ms. Young, and Ms. Burch, Ms. Young stated that Pecandarosa Ranch began using QuickBooks in 2015. During the examination Ms. Young provided RA Hagelberg with an undated written business plan. The document she provided to RA Hagelberg did not exist during the years at issue.26 The business plan stated that Pecandarosa Ranch "will provide . . . a source for pecans, firewood, hay, horse boarding, various equine activities, weddings, family reunions and parties, and an overnight horse hotel, equine trailer hook-up, and Bed & Breakfast rental." It also stated that Pecandarosa Ranch's financial objectives included breaking even within seven years and included an income and expense table showing a cumulative profit of $34,500 by 2020. The income and expense table forecasted total costs each year of $100,000 from 2012 to 2015 and $10,000 from 2016 to 2022. In relation to the forecast, the plan stated that [b]ecause of the large cost of equipment for Ranching and Harvesting, cash purchases of the equipment to minimize debt and interest expense[,] and the phased start-up 25 RA Hagelberg did not testify at trial. 26 When asked when she prepared the business plan in Exhibit 51-J, Ms. Young testified that she prepared it in that form "[w]henever I was asked for my notes" and that "I took my notes and put it into a Word document whenever I was asked during the audit." We do not find as fact that Ms. Young's alleged notes-which are not in the record-existed, but we accept her testimony that she prepared the business plan in Exhibit 51-J in that form during the examination. approach, the forecast for realized profits is 5-7 years and [for] fully break[ing] even [is] at 8-10 years. Initial start-up equipment costs outside of permanent structures is estimated at $300,000 from 2012 through 2015. RA Hagelberg prepared schedules allocating The plan included a table that broke down the forecasted income by undertaking ("Pecan," "Hay/Wood," "Arena Cottage Trailer," "Equine Cattle," and "Roping") but did not break down the forecasted expenses by undertaking. It did not include a discussion of Pecandarosa Ranch making a profit from land appreciation. The plan, however, did refer to Mr. Young, stating that "[i]n 2012, a Professional Ranch Manager brought new opportunity to the Ranch." income and expenses among Pecandarosa Ranch's undertakings (as he understood them) for the years at issue. Specifically, he allocated income and expenses among "Pecans/Wood," "Team Roping," "Horse Boarding," "Arena/Venue Rental," and "Hay/Cattle." His allocations showed losses for each of those undertakings, as well as for all of the undertakings in the aggregate. In October 2016 the Youngs' and respondent's authorized representatives signed a Form 872, Consent to Extend the Time to Assess Tax, agreeing to extend the time to assess tax for the 2013 taxable year to April 30, 2018. A Civil Penalty Approval Form dated December 2, 2016, reflects RA Hagelberg's decision to assert accuracy-related penalties for the years at issue, as well as his immediate supervisor's approval of the assertion of accuracy-related penalties on December 30, 2016. Respondent determined adjustments to the Youngs' Schedules F for the years at issue based on his determination that the Pecandarosa Ranch activity was not engaged in for profit under section 183. Respondent did not determine that the amounts of the Youngs' expenses were unsubstantiated. Respondent reclassified the Schedule F income as other income and disallowed the Schedule F expense deductions in their entirety for each year at issue, except that (1) he allowed the Youngs $1,061 of the $2,459 reported 2013 tax expense27 and all of the $969 reported 2014 tax expense as itemized deductions on Schedules A, Itemized Deductions, of their Forms 1040, (2) he did not adjust the 27 Respondent disallowed $1,398 of the reported Schedule F tax expense for 2013 after determining that it was a duplicate of a real property tax that the Youngs had already deducted elsewhere on their income tax return. $2,957 reported mileage expense for 2014,28 and (3) he allowed the Youngs miscellaneous itemized deductions in amounts equal to the reclassified Schedule F income, subject to the limitation of section 67(a). Cf. § 183(b); Gregory v. Commissioner, T.C. Memo. 2021-115, at *14 ("[S]ection 183(b)(2) constitutes a miscellaneous itemized deduction subject to section 67(a)'s 2-percent floor."), aff'd, 69 F.4th 762 (11th Cir. 2023). Respondent also determined that the Youngs were entitled to an additional $240 Schedule A for charitable contributions in 2014. On November 13, 2017, respondent issued the Youngs a Notice of Deficiency determining income tax deficiencies and accuracy-related penalties for the years at issue as follows: itemized deduction Year Deficiency § 6662 Penalty 2013 2014 $109,432 $107,294 $21,886 $21,459 On February 7, 2018, the Youngs timely petitioned this Court for review of respondent's determinations. OPINION I. Jurisdiction and Burden of Proof We have jurisdiction to resolve this case under section 6213(a). The Commissioner's determinations in a Notice of Deficiency are generally presumed correct, and the taxpayer bears the burden of proving that the determinations are incorrect. See Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933); Esgar Corp. v. Commissioner, 744 F.3d 648, 653 (10th Cir. 2014), aff'g T.C. Memo. 2012-35, and Temple v. Commissioner, 136 T.C. 341 (2011). Deductions are a matter of legislative grace, and taxpayers bear the burden of proving that they are entitled to any deduction claimed. See INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). A taxpayer claiming a deduction on a federal income tax return must demonstrate that the deduction is provided for by statute and must maintain records sufficient to enable the Commissioner to 28 The parties have also stipulated that there is a $1 discrepancy between the $1,663 reported repairs and maintenance expense for 2014 and the $1,662 adjustment that respondent made in the notice of deficiency. determine the correct tax liability. See § 6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Treas. Reg. § 1.6001-1(a). Under section 7491(a), if the taxpayer provides credible evidence concerning any factual issue relevant to ascertaining the taxpayer's liability and complies with certain other requirements, the burden of proof shifts to the Commissioner as to the factual issue. The Youngs asserted in their Pretrial Memorandum and again at trial that section 7491(a) shifts the burden of proof to respondent in this case. We need not decide the Youngs' contention in this regard because our findings and analysis do not depend on which party bears the burden of proof. See Esgar Corp. v. Commissioner, 744 F.3d at 653-54; Addis v. Commissioner, 118 T.C. 528, 529 n.1 (2002), aff'd, 374 F.3d 881 (9th Cir. 2004). We discuss the burden of proof applicable to the accuracy-related penalties respondent determined against the Youngs separately in connection with our discussion of those penalties. II. issue remaining for our decision is whether the Youngs' reported Schedule F expenses for the years at issue should be allowed as deductions in amounts greater than those respondent already allowed. See supra FINDINGS OF FACT Part VII. We note that neither substantiation of the amounts of the expenses nor whether it is proper to attribute those expenses to Pecandarosa Ranch is at issue. The parties' disagreement instead concerns only whether the Youngs engaged in the Pecandarosa Ranch activity for profit during the years at issue. We conclude by a preponderance of the evidence that they did not. Our discussion proceeds in three parts. First, we briefly provide some legal background. Second, we ascertain the activity at issue. Finally, we consider whether the Youngs engaged in the Pecandarosa Ranch activity for profit within the meaning of section 183. Section 183 Regarding the deficiency determinations, the sole Background A. Taxpayers are generally allowed deductions for business-related expenses and for expenses paid or incurred for the production or collection of income. See §§ 162, 212. Section 183(a) provides, however, that "[i]n the case of an activity engaged in by an individual or an S corporation, if such activity is not engaged in for profit, no deduction attributable to such activity shall be allowed under" chapter 1 of subtitle A of the Code except to the extent provided by section 183(b). Section 183(b) allows (1) deductions that would be allowable without regard to whether the activity was engaged in for profit and (2) a deduction equal to the amount of deductions that would be allowable only if such activity were engaged in for profit, but only to the extent that the gross income from such activity exceeds the deductions allowable without regard to profit motive. See Kraske v. Commissioner, T.C. Memo. 2023-128, at *7. Ascertaining the Activity at Issue the interconnected. The Commissioner will generally accept B. To determine whether a taxpayer had an intent to make a profit, the activity at issue must first be ascertained. See Treas. Reg. § 1.183-1(d)(1). Where a taxpayer is engaged in several undertakings, each may be a separate activity. See id. Nonetheless, a taxpayer's multiple undertakings may be treated as one activity if the undertakings are sufficiently See Welch v. Commissioner, T.C. Memo. 2017-229, at *22 (citing Treas. Reg. § 1.183-1(d)). taxpayer's characterization of multiple undertakings as either a single activity or separate activities. See Treas. Reg. § 1.183-1(d)(1). The taxpayer's characterization will not be accepted, however, when it appears that it is artificial and cannot be reasonably supported by the facts and circumstances of the case. See id. "In ascertaining the activity or activities of the taxpayer, all the facts and circumstances of the case must be taken into account." Id. Generally, the most significant facts and circumstances to consider when ascertaining the activity at issue are the degree of organizational and economic interrelationship of the undertakings, the business purpose that is (or might be) served by carrying on the undertakings separately or together, and the similarity of the undertakings. Id. We also consider (1) whether the undertakings were conducted at the same place, (2) whether the undertakings were part of the taxpayer's efforts to find sources of revenue from their land, (3) whether the undertakings were formed separately, (4) whether one undertaking benefited from the other, (5) whether the taxpayer used one undertaking to advertise the other, (6) the degree to which the undertakings shared management, (7) the degree to which one caretaker oversaw the assets of both undertakings, (8) whether the same accountant was used for the undertakings, and (9) the degree to which the undertakings shared books and records. See Topping v. Commissioner, T.C. Memo. 2007-92, 2007 Tax Ct. Memo LEXIS 88, at *17-18 (citing Mitchell v. Commissioner, T.C. Memo. 2006-145). We will first briefly discuss an issue that is not in dispute. While the parties dispute whether the Pecandarosa Ranch activity should be grouped together with the holding of the land on which Pecandarosa Ranch is located as a single activity, it is undisputed that the varied undertakings making up Pecandarosa Ranch's operations should be treated together as a single activity. Although some of the undertakings are not entirely similar to others (e.g., pecan farming and team roping), the parties' decision to treat Pecandarosa Ranch as a single activity in their posttrial briefs effectively ends our inquiry. The Commissioner ordinarily accepts the taxpayer's characterization in this regard unless it is artificial or cannot be reasonably supported, and he has accepted it here. Separately, we may deem issues not raised in posttrial briefs to be conceded. See Mendes v. Commissioner, 121 T.C. 308, 312-13 (2003). Finally, although we need not decide whether it is the best characterization, the parties' characterization finds reasonable support in the record. For example, the undertakings were mostly conducted at the same place, Pecandarosa Ranch,29 and were reported by the same accountant, Ms. Burch, as a single activity. See Hoyle v. Commissioner, T.C. Memo. 1994-592, 1994 WL 675565, at *5 (holding that "each of [the taxpayer's] organizationally and economically interrelated" because "[f]arming, hunting, crabbing, riding lessons, horse boarding, game-bird breeding, and thoroughbred horse racing occurred at one location and were all part of [the taxpayer's] various efforts to find sources of revenue on his farm" and the "same accountant maintained tax records for all of the . . . activities"). Mr. Young also credibly testified that the same equipment was sometimes used in more than one of the undertakings. We will thus treat the Youngs' varied undertakings as a single Pecandarosa Ranch activity. The parties, however, dispute whether the Pecandarosa Ranch activity should be grouped together with the holding of the land on which it occurs for purposes of section 183. The first question we must confront is whether the general rule concerning the grouping of undertakings that we just discussed, or the special rule in the last two sentences of Treasury Regulation § 1.183-1(d)(1) pertaining to operational activities were 29 Team roping competitions, however, occurred offsite. farming,30 applies. See Burrus v. Commissioner, T.C. Memo. 2003-285, 2003 WL 22272897, at *6 ("The regulations . . . provide for delineating activities under section 183 with a general rule drawing on all facts and circumstances, and a special rule in the case of land acquired or held primarily for its appreciation on which farming is also conducted."). The last two sentences of Treasury Regulation § 1.183-1(d)(1) provide that [w]here land is purchased or held primarily with the intent to profit from increase in its value, and the taxpayer also engages in farming on such land, the farming and the holding of the land will ordinarily be considered a single activity only if the farming activity reduces the net cost of carrying the land for its appreciation in value. Thus, the farming and holding of the land will be considered a single activity only if the income derived from farming exceeds the deductions attributable to the farming activity which are not directly attributable to the holding of the land (that is, deductions other than those directly attributable to the holding of the land such as interest on a mortgage secured by the land, annual property taxes attributable to the land and improvements, and depreciation of improvements to the land). In other words, if the special rule applies, "the activity conducted on the property must be independently profitable, excluding deductions relating to holding the property (such as rent and depreciation of improvements to real property), such that the farming activity helps support the taxpayer's holding of the land for appreciation." Estate of Stuller v. United States, No. 11-3080, 2013 WL 1287402, at *7 (C.D. Ill. Mar. 27, 2013) (citing Burrus v. Commissioner, 2003 WL 22272897, at *8). "Determining whether the special rule in the regulations is applicable requires a finding of the primary purpose for acquiring or holding the land." Burrus v. Commissioner, 2003 WL 22272897, at *6; see Hoyle v. Commissioner, 1994 WL 675565, at *6 ("If the taxpayer's primary intent is not to profit from appreciation of the land, then the general rule of the regulation applies in determining whether there is a single activity."). 30 The term "farming" in Treasury Regulation § 1.183-1(d)(1) includes ranching. See Hoelscher v. Commissioner, T.C. Memo. 2013-236, at *5-6. The special rule does not apply because the Youngs and respondent argue that profiting from appreciation in the value of the land was not the primary purpose for acquiring or holding the land. The Youngs argue that the special rule is inapplicable because they31 "purchased Pecandarosa Ranch to harvest pecans." Respondent argues that the Youngs32 "never treated their holding of the . . . land as an activity from which they expected to profit from appreciation" and that "the record reflects no evidence that [the Youngs] even treated the holding of the land as an undertaking." We conclude that the primary purpose of acquiring or holding the land was not to profit from appreciation in its value. Proceeding under the general rule in Treasury Regulation § 1.183-1(d)(1), we agree with respondent that-even assuming arguendo that landholding was an undertaking-it was a separate activity from the ranching activity.33 "Considering all of the facts and circumstances, we find that there was no economic or organizational relationship between the land and" the Pecandarosa Ranch activity. See Price v. Commissioner, T.C. Memo. 2014-253, at *66, aff'd, 633 F. App'x 101 (3d Cir. 2016). The Youngs' use of the property as a residence and Ms. Young and Mr. Todd's acquisition of it for that purpose, discussed below, weigh against finding a high degree of organizational and economic integration between the land and the ranching activity even though the ranching activity primarily took place on the land. See id. That is especially true here in view of the 2019 division of the land into the separate residence and chapel tracts and the Youngs' 2023 attempt to sell the residence tract separately from the chapel tract. See id. Furthermore, respondent correctly notes that there is no evidence that the holding of the land was organized as a business during the years at 31 To the extent the Youngs may be asserting that Mr. Young participated in the purchase of Pecandarosa Ranch, that assertion is factually incorrect. Mr. Todd, not Mr. Young, participated in the purchase. 32 To the extent respondent may be asserting that Mr. Young owned or held an interest in the land during the years at issue, there is nothing in the record to indicate that is true in either a legal or equitable sense. The record does not disclose whether Mr. Young was a trustee or beneficiary of the Janet Sue Todd 2004 Living Trust, which owned the land during the years at issue, at any time. 33 The Youngs are incorrect in categorically stating that "when a taxpayer purchase[s] property with the primary intent to use it in farming, the land and farming are treated as one activity." See Boddy v. Commissioner, T.C. Memo. 1984-156, 1984 Tax Ct. Memo LEXIS 514, at *22 n.6 ("[W]hen land is purchased or held with the intent to farm, it does not automatically follow that the holding of land for appreciation and the farming must be considered a single activity."), aff'd, 756 F.2d 884 (11th Cir. 1985) (unpublished table decision). issue; that the Youngs did not place title to the land in a business name during that time; and that there is no evidence that the Youngs filed returns or kept books for landholding or that the landholding activity cross-advertised with the ranching activity. Pecandarosa Ranch's undated business plan also contains no discussion of landholding or land appreciation. While the Youngs are correct that Ms. Young and Mr. Todd "did not delay in pecan-harvesting preparations after purchasing the property" and thus that Price is distinguishable in that respect, the property's function as a residence ultimately played too large a role in the landholding activity to permit the land to be integrated with the ranching activity. While Pecandarosa Ranch's undertakings fluctuated over time, the property's use as a residence did not. Cf. Betts v. Commissioner, T.C. Memo. 2010-164, 2010 WL 2990300, at *10 ("[The taxpayer] may have purchased the land primarily for the purpose of her first horse activity; however, it was also her primary residence, and she remained on the property between her two horse activities."). When asked at trial about whether she discussed the reasons for purchasing the property with Mr. Todd, Ms. Young replied in part: "It wasn't the first time we looked at something, and then said, oh, this is [an] emotional decision. This looks good, buy it." When asked what the reason was for the property purchase, Ms. Young replied in part: "Well, it was our home. I mean, we were purchasing a new home. The fact that it had everything that we wanted, plus the potential for more. It was the right property for us. It's a special place." She added: "[Y]ou drive onto the property, and people [are] just, like, wow."34 We conclude that the Youngs' attempt to integrate the ranching activity with the assumed landholding activity is artificial and not reasonably supported by the record. We will not consider integrating only the chapel tract with the ranching activity absent any guidance from the parties about how the Treasury Regulation § 1.183-2(b) analysis would proceed, even assuming such integration is possible, considering that the chapel tract did not exist as a separate tract until after the years at issue. "Consequently, we hold that the [land] is not to be considered an asset of" Pecandarosa Ranch. See Price, T.C. Memo. 2014-253, at *67. 34 After the Youngs' counsel asked Ms. Young for clarification, Ms. Young added that "we felt like we had an income stream that was already established. That grove had been going for a long time, [and] that was just going to supplement the property." C. Whether the Activity Was Engaged In for Profit Having decided that the ranching activity is separate from the holding of the land but is otherwise a single activity comprising the other undertakings, we must next consider whether the Youngs35 engaged in the ranching activity during the years at issue with the intent to make a profit. See Treas. Reg. § 1.183-2(a) (requiring a determination of whether "the facts and circumstances . . . indicate that the taxpayer entered into the activity, or continued the activity, with the objective of making a profit"). An activity is engaged in for profit if the taxpayer entertained an actual and honest profit objective in engaging in the activity.36 See Dreicer v. Commissioner, 78 T.C. 642, 644-45 (1982), aff'd, 702 F.2d 1205 (D.C. Cir. 1983) (unpublished table decision); see also Treas. Reg. § 1.183-2(a). And, in the Tenth Circuit, the circuit to which this case is appealable absent a stipulation to the contrary, see § 7482(b)(1)(A), profit must be the dominant or primary objective, Hildebrand v. Commissioner, 28 F.3d 1024 (10th Cir. 1994), aff'g Krause v. Commissioner, 99 T.C. 132 (1992). The taxpayer's expectation of profit must be in good faith but need not be reasonable. See Keanini v. Commissioner, 94 T.C. 41, 46 (1990); Dreicer, 78 T.C. at 644-45; Allen v. Commissioner, 72 T.C. 28, 33 (1979). Whether the requisite profit objective exists is determined by looking at all the surrounding facts and circumstances. See Keanini, 94 T.C. at 46; Treas. Reg. § 1.183-2(b). Greater weight is given to objective facts than to a taxpayer's mere statement of intent. See Thomas v. Commissioner, 84 T.C. 1244, 1269 (1985), aff'd, 792 F.2d 1256 (4th Cir. 1986); see also Treas. Reg. § 1.183-2(a). The Treasury Regulations provide a nonexhaustive list of nine factors that should be considered: (1) the manner in which the taxpayer carries on the activity; (2) the expertise of the taxpayer or the taxpayer's advisers; (3) the time and effort expended by the taxpayer in carrying on the activity; (4) the expectation that assets used in the activity may appreciate in value; (5) the success of the taxpayer in carrying on similar 35 The parties' posttrial briefs effectively assume without discussion that each of the Youngs qualifies as a "taxpayer [who] entered into the activity, or continued the activity," see Treas. Reg. § 1.183-2(a), and whose intent is thus relevant for purposes of section 183. We are satisfied with that approach on the record before us. 36 Section 183(d) provides a presumption that an activity with a specified number of taxable years in which the gross income derived from the activity exceeds the deductions attributable to the activity is engaged in for profit. While the Youngs briefly summarize section 183(d) in their Simultaneous Opening Brief, their posttrial briefs do not argue that section 183(d) applies, and we conclude that it does not. 26 it is not that intended is determinative," and [*26] activities; (6) the taxpayer's history of income or loss with respect to the activity; (7) the amount of occasional profits, if any; (8) the financial status of the taxpayer; and (9) whether elements of personal pleasure or recreation are involved. Treas. Reg. § 1.183-2(b). "No one factor "a determination . . . be made on the basis that the number of factors . . . indicating a lack of profit objective exceeds the number of factors indicating a profit objective, or vice versa." Id. "Evidence from years outside the years in issue can be relevant if it provides context to evaluate the taxpayer's overall requisite profit motive." Den Besten v. Commissioner, T.C. Memo. 2019-154, at *18; cf. § 6214(b). Nonetheless, "we look at the profit picture in respect of the years at issue in terms of prior actual and anticipated future operations as they appeared at those times; actual profits or losses in those and subsequent years have probative, although not determinative, significance in such evaluation." Smith v. Commissioner, T.C. Memo. 1993-140, 1993 WL 99970, at *9. 1. Manner in Which Taxpayer Carries On the Activity The fact that a taxpayer carries on an activity in a businesslike manner and maintains complete and accurate books and records may indicate that an activity is engaged in for profit. Treas. Reg. § 1.183-2(b)(1). This may be indicated where a taxpayer changes operating methods, adopts new techniques, or abandons unprofitable methods in a manner consistent with an intent to improve profitability. Id. Characteristics of a businesslike operation also include the preparation of a business plan. See Mathis v. Commissioner, T.C. Memo. 2013-294, at *9 (citing Bronson v. Commissioner, T.C. Memo. 2012-17, aff'd, 591 F. App'x 625 (9th Cir. 2015)). The Youngs used a personal bank account for Pecandarosa Ranch during the years at issue, and Pecandarosa Ranch's books and records were deficient during that time. Although Ms. Young oversaw ETI's accounting, which used QuickBooks, and had education in business management (including two accounting courses), the Youngs did not keep adequate books and records or maintain a general ledger for Pecandarosa Ranch. While Ms. Young retained copies of invoices, receipts, and statements, she did so for the purpose of permitting Ms. Burch to prepare the Youngs' returns. The Youngs point to spreadsheets prepared by either Ms. Young or Ms. Burch recording Pecandarosa Ranch's income and expenses for the years at issue as evidence of a businesslike operation, but the record does not establish that the Youngs made use of them in decision making. The record indicates only that the spreadsheets facilitated tax return preparation. It is unlikely that the spreadsheets could have enabled informed decision making because they did not allocate expenses among different undertakings or even identify what Pecandarosa Ranch's undertakings were. The lack of such analysis is especially troubling in view of several significant asset purchases (and related section 179 expenses) during the years at issue.37 See supra notes 23 and 24. While the Youngs point out that we have previously found the existence of a profit motive where a taxpayer "did not maintain a formal set of books for [a] pecan operation," Cole v. Commissioner, T.C. Memo. 1992-51, 1992 Tax Ct. Memo LEXIS 56, at *15, the construction of the arena and Mr. Young's arrival at the ranch meant that by the years at issue, the Pecandarosa Ranch activity was no longer solely a pecan farming operation whose income and expenses might reliably be tracked through informal methods. There is also no indication in the record that the Youngs made significant changes or refinements to their method of pecan farming or performing other undertakings during the years at issue despite Mr. Young's relevant experience, nor does the record 37 We do not go as far as respondent, who points, for example, to a $108,000 expense for a trailer in 2014 as a failure of cost control. The fact that the Youngs did not make a profit in team roping before the purchase of the trailer does not show that the trailer could not have been used to control losses from the activity, and there is insufficient evidence in the record to support such a finding. Nor does the fact that the trailer was fully expensed under section 179 show that it had only one year or less of useful life. Cf. Hotel Kingkade v. Commissioner, 180 F.2d 310, 312 (10th Cir. 1950) ("Generally, an expenditure should be treated as of a capital nature if it brings about the acquisition of an asset having a period of useful life in excess of one year or if it secures a like advantage to the taxpayer which has a life of more than one year."), aff'g 12 T.C. 561 (1949). As far as the record discloses, the only reason Pecandarosa Ranch deducted this expense in full for federal income tax purposes (as opposed to capitalizing it and depreciating it over a period of years) was the availability of a section 179 election, which respondent has not challenged except to the extent section 183 disallows the section 179 expenses for the years at issue. Nonetheless, we also disagree with the Youngs' argument that the trailer purchase provides evidence of cost control because it allegedly enabled the Youngs to save on meal and hotel expenses during team roping competitions. There is not a sufficient foundation in the record for us to find that the trailer purchase resulted in (or could have been expected to result in) net cost savings. Separately, with regard to pecan harvesting equipment, we note that there is no foundation in the record for us to conclude that the Youngs were responsible for providing pecan harvesting equipment to Mr. Crose (as opposed to Mr. Crose's providing his own equipment). establish that Pecandarosa Ranch's undertakings were conducted similarly to other profitable activities. The record does not establish the existence of a business plan before or during the years at issue. The only business plan in the record is an undated one Ms. Young created during the examination. Even assuming arguendo that Ms. Young based the plan on alleged contemporaneous notes that are not in the record, the plan forecasted a 90% drop in annual costs from $100,000 during 2012-15 to $10,000 during 2016-22. Actual annual expenses for 2015-22, however, exceeded $100,000 in each case, and we have not heard a credible explanation about the discrepancy between the alleged business plan and the facts. A clear implication of the plan was that Pecandarosa Ranch would deliver a modest cumulative profit by 2020 through a remarkable degree of cost savings: Projected revenue for 2020 was only $102,500, so the drop in annual costs from $100,000 to $10,000 was critical to the plan's projected profit. The business plan, however, remained vague on where the cost savings would be found, and the record does not disclose that a systematic cost-cutting effort ever occurred.38 Nor did the business plan break down forecasted expenses by undertaking, and it offered few details about how Pecandarosa Ranch would generate the amounts of revenue the plan predicted. 38 The Youngs point to a few isolated examples of cost-cutting they gave in their testimony. According to the Youngs, at unestablished times they (1) explored so-called glamping (i.e., glamorous camping) as a revenue stream but discontinued the service because it involved too much labor for too little profit, (2) offered a horse boarding service before discontinuing it because their insurance premium payments were too high, and (3) offered floral arrangements for wedding and corporate event customers but discontinued that undertaking because it involved too much labor for too little profit. As an initial matter, these undertakings do not establish the type of systematic cost-cutting effort contemplated in the business plan, and their relationship to the years at issue, if any, is unestablished. Moreover, what we would prefer to see instead is evidence that the Youngs refined their operating methods to improve profitability after making a reasonable initial business plan or investigation of profitability, not evidence that the Youngs repeatedly abandoned entire undertakings or lines of business after becoming disappointed by time and expense considerations they never adequately investigated. The need to end the horse boarding undertaking, for example, was at least partly self-inflicted because, in Ms. Young's words, "to find insurance for the [event] venue, they made us stop horse boarding. They said it's too dangerous. You can't have that on the same place where you're serving alcohol and having guests." The interaction between the various undertakings on Pecandarosa Ranch would have been an appropriate topic of business planning. Regarding Pecandarosa Ranch's pecan harvesting operation, Mr. Todd and Ms. Young did not conduct a feasibility study regarding pecan harvesting before purchasing the property. Contrary to the Youngs' suggestion, there is not a sufficient foundation for us to conclude that the prior owners' pecan harvesting operation was profitable or that Mr. Todd and Ms. Young believed it was. The record indicates only that they spoke with the prior owners and Mr. Crose-none of whom testifiedabout how harvesting was conducted and that proper maintenance of the grove permitted Mr. Crose to be paid a reduced share of the pecan haul. The undated business plan even describes the pecan harvesting operation as being in a startup phase and states that Pecandarosa Ranch's financial objectives include creating a long-term and profitable revenue source, statements which run counter to the idea that pecan harvesting on Pecandarosa Ranch had long been profitable. Despite our admonition early during trial that we "want it abundantly clear what time frame we're talking about" and that "the most relevant information is . . . going to be for 2013 and 2014," the record is confusing and disorienting as to the timing of the Youngs' plans for the ranch and how Pecandarosa Ranch's operations evolved. When asked at trial whether she "recall[ed] when the roping, horse boarding, arena, venue rental, and all those operations began," Ms. Young replied vaguely and in relevant part that "they all started at different times." The lack of clarity on this point underscores the existence of recordkeeping and business planning deficiencies during the years at issue, as well as the likely personal, residential, or recreational (rather than commercial) character of the ranching activity during those years.39 We view evidence about the Youngs' later operation of a wedding and event venue on the property, among other undertakings, as largely anachronistic and uninformative about how the Youngs operated the ranching activity during the years at issue, whose character centered on pecan farming and team roping. Likewise, despite the fact that advertising, website, and social media materials are in the record, we do not ascribe much weight to them because there is virtually 39 Although we need not make any decision on the point, some of the evidence in the record can be understood to suggest that any profit motive the Youngs may have had developed after the years at issue. For example, while Ms. Young testified that the determining factor in discontinuing floral design at the event venue was "what we had coming in and what we spent," she added that "that is categorized in QuickBooks. So I can run that. And I can look at that section of the venue, versus weddings and rentals." That is precisely our point: Keeping reasonably detailed books and records in later years permitted the type of informative financial analysis across multiple lines of business that the Youngs did not attempt during the years at issue. no indication that they were part of marketing efforts during the years at issue, if any such efforts occurred.40 Finally, many of the steps the Youngs took to formalize Pecandarosa Ranch's operations (e.g., formation of a limited liability company, opening a separate bank account, adoption of QuickBooks, and dividing the property into separate residence and business tracts) occurred after they came under audit in 2015 and do not bear heavily on their motives during the years at issue. This factor favors respondent. 2. Expertise of Taxpayer or Advisers Preparation for an activity by extensive study of its accepted business, economic, and scientific practices, or consultation with those who are expert therein, may indicate that a taxpayer has a profit motive where the taxpayer carries on the activity in accordance with such practices. Treas. Reg. § 1.183-2(b)(2). Where a taxpayer has such preparation or procures such expert advice but does not carry on the activity in accordance with such practices, a lack of intent to derive profit may be indicated unless it appears that the taxpayer is attempting to develop new or superior techniques which may result in profits. Id. Mr. Young was an experienced ranch manager. He had extensive experience with team roping, hay baling, pecan harvesting, and working with cattle and horses. Mr. Young also attended seminars conducted by the Oklahoma Pecan Growers Association and took lessons from world champion team ropers. Despite Mr. Young's relevant experience, however, there is no clear indication in the record that he applied his expertise to improve profitability or conform any aspect of Pecandarosa Ranch to accepted business or technical practices during the years at issue. The record discloses no clear operational refinements on the Youngs' part to improve profitability during that time. Ms. Young also testified that construction on the arena began before she met Mr. Young. While we do not credit that uncorroborated testimony on the uncertain record before us, the Youngs' own account implies that Pecandarosa Ranch's engagement in undertakings making use of the arena (and 40 Although many of these materials are undated or bear dates that may reflect only the date they were accessed or printed, the record discloses that the Youngs made posts on Craigslist to sell pecan wood in 2016 and hay in 2017 and that Pecandarosa Ranch's Facebook page was created in October 2017. Comments on a printout of the Horse Motels International website bear 2016 and 2017 dates, and comments on a ChamberOfCommerce.com printout bear 2018 and 2019 dates. deduction of expenses related to it) is not entirely attributable to Mr. Young's relevant experience.41 As far as the record discloses, although Ms. Young had a general business background, she did not have experience with ranch management before moving to Pecandarosa Ranch. While she and Mr. Todd spoke with Pecandarosa Ranch's then owners and Mr. Crose about the pecan grove's harvesting before buying the property, there is no credible evidence that the conversation concerned profitability or business considerations, or that they conducted any meaningful investigation into the profitability of their activity. Mr. Todd and Ms. Young, however, joined the Oklahoma Pecan Growers Association in 2009, subscribed to pecan-related periodicals, and continued employing Mr. Crose (a professional pecan harvester) until 2014.42 Nonetheless, their efforts fell short of preparation, extensive study, or expert consultation because they did not conduct an investigation regarding the profitability of pecan harvesting before purchasing the property for use as their residence. This factor is neutral. 3. Time and Effort Expended by Taxpayer in Carrying On the Activity The fact that a taxpayer devotes much of her personal time and effort to carrying on an activity, particularly if the activity does not have substantial personal or recreational aspects, may indicate an intention to derive a profit. Treas. Reg. § 1.183-2(b)(3). A taxpayer's withdrawal from another occupation to devote most of his or her energies to the activity may also be evidence that the activity is engaged in for profit. Id. The fact that a taxpayer devotes a limited amount of time to an activity does not necessarily indicate a lack of profit motive where the taxpayer employs competent and qualified persons to carry on the activity. Id. 41 Ms. Young testified that "my purpose [in constructing the arena] was to start a business at the ranch that involves horses, with the right people helping me" and that "I had met a lady . . . very shortly before that. And we were going to raise horses, train them; she was a trainer." We do not credit this testimony because it is uncorroborated, and the alleged horse trainer did not testify and was not identified. Even assuming arguendo that there was such a plan, there is no credible evidence that it was a businesslike plan or that Ms. Young adequately investigated the profitability considerations. 42 A copy of an article by the Texas A&M AgriLife Extension Service titled "Improved Pecans" is in the record as Exhibit 135-J, but there is no foundation for us to conclude when (if ever) the Youngs or Mr. Todd reviewed it. Respondent states that he "does not dispute that Mr. Young spent substantial time in the Pecandarosa Ranch activity, having started full time at Pecandarosa Ranch beginning in July 2013." We agree, although we also agree with respondent that there were substantial personal and recreational elements to the time Mr. Young spent on the Pecandarosa Ranch activity. See infra OPINION Part II.C.9. Ms. Young worked only 15 hours per week at ETI during the years at issue, although it is unclear from the record how much of her remaining time she devoted to Pecandarosa Ranch. The Youngs, however, were physically active on Pecandarosa Ranch, provided manual labor for it, and sometimes worked after dark. Mr. Crose and other qualified laborers also assisted the Youngs (or Mr. Todd, as applicable) in carrying out the activity. Mr. Young also resigned from his job at Hughes Cattle Co. before he started to work at Pecandarosa Ranch. On balance, this factor favors the Youngs. 4. Expectation That Assets Used in Activity May Appreciate in Value Treasury Regulation § 1.183-2(b)(4) provides: The term profit encompasses appreciation in the value of assets, such as land, used in the activity. Thus, the taxpayer may intend to derive a profit from the operation of the activity, and may also intend that, even if no profit from current operations is derived, an overall profit will result when appreciation in the value of land used in the activity is realized since income from the activity together with the appreciation of land will exceed expenses of operation. See, however, paragraph (d) of § 1.183-1 for definition of an activity in this connection. A profit objective may be inferred from expected appreciation of an activity's assets only where the appreciation exceeds operating expenses and would be sufficient to recoup the accumulated losses of prior years. See Foster v. Commissioner, T.C. Memo. 2012-207, 2012 WL 3000350, at *7 (first citing Golanty v. Commissioner, 72 T.C. 411, 427-28 (1979), aff'd, 647 F.2d 170 (9th Cir. 1981) (unpublished table decision); and then citing Hillman v. Commissioner, T.C. Memo. 1999-255). A vague and unauthenticated notion that assets are appreciating does not constitute a bona fide expectation that the appreciation will offset past and future losses. See La Musga v. Commissioner, T.C. Memo. 1982-742, 1982 Tax Ct. Memo LEXIS 4, at *15-16. We have already addressed Treasury Regulation § 1.183-1(d) and ruled that ranching and landholding are separate activities. The parties' arguments on this factor, however, largely concern appreciation in Pecandarosa Ranch's property value, even though landholding is separate from the Pecandarosa Ranch activity. Nonetheless, the Youngs have asked us specifically to consider "the investments that [the Youngs] made to develop new structures on the property for use in the business" as a potential source of appreciation. The record, however, leaves us with no clear means of making that evaluation. As an initial matter, some of the structures, including the wedding and event venue, were constructed after the years at issue. Cf. supra note 15 (noting other improvements after the years at issue). Those structures are not probative of whether the Youngs had an expectation during the years at issue that business-use assets would appreciate enough for them to recoup their losses. In any event, the Youngs have not explained which structures they consider to be for business use. The 2013 appraisal, for example, lists 12 improvements, and categorizing the purpose of all of them is not self-explanatory given that Pecandarosa Ranch also served as the Youngs' residence. The Youngs have not provided us with a list of alleged business-use structures in which they purportedly had an expectation of appreciation, let alone citations of the record documenting those structures' change in value over time, establishing an expectation that specific structures would appreciate, or establishing the operating expenses attributable to those structures. That type of explanation is crucial because we must evaluate not only whether some appreciation potential existed but also whether recoupment of past losses would be possible through appreciation of business-use structures. The increase in Pecandarosa Ranch's property value over time, which is documented in appraisals in the record, is not even approximate proof of how much business-use structures could be expected to appreciate because (1) some of the increase is due to costly construction after the years at issue, not asset appreciation, (2) some of the increase is attributable to the land, not structures, cf. Golanty, 72 T.C. at 429-30, and (3) there were residential structures, not just business-use structures, and it is sometimes difficult to discern which category a particular structure falls into.43 Likewise, any suggestion 43 We note the possibility (unexplored by the parties) of applying a business-use percentage to a given structure in lieu of categorizing it as entirely for either business that the $750,000 difference between the ranch's $2 million purchase price in 2008 and its $2,750,000 appraised value in 2013 is due to appreciation should be rejected: Construction began on the arena in the interim, which the 2013 appraisal considered (valuing the arena at $399,500), and an allocation of the 2008 purchase price between the land and then-existing structures would also be needed to determine how much of the rest of the difference is due to land appreciation or appreciation in residential structures. Some explanation of how to account for all of the moving parts we have discussed would be necessary before we could consider finding that, as of the years at issue, business-use structures could be expected to appreciate sufficiently to recoup past and future losses. The Youngs cite some of Mr. Young's testimony for the proposition that they had an expectation that trained horses for team roping would appreciate. The cited testimony, however, does not clearly establish whether the Youngs had a contemporaneous expectation of profit even if trained horses generally have some potential to appreciate. The record does, however, establish that horse sales were a very minor part of Pecandarosa Ranch's operations. Three horses were sold in 2014 for a total of $7,000, and the 2016 profit and loss statement shows another $2,457 of income from "Horse Sales." Mr. Young's testimony that he has sold team roping horses on occasion was vague and does not support an expectation of significant asset appreciation. Although the Youngs were members of the American Quarter Horse Association, the American Paint Horse Association, and the Pinto Association, the record does not establish that they showed any horses. Cf. Ellis v. Commissioner, T.C. Memo. 1984-50, 1984 Tax Ct. Memo LEXIS 619, at *38-39 ("It is clear that when a quarter horse is successfully shown, the value of that horse increases."). Finally, the undated business plan does not discuss asset appreciation, let alone appreciation of horses, as a source of profit, and the Youngs have not explained how much of their operating expenses was attributable to horses. We note that the parties have stipulated that the Youngs did not breed horses and that their horses were gelded, so the Youngs are arguing only that unidentified team roping horses might have increased in value, not (for example) that they might have commanded stud fees. Pecandarosa Ranch had no prospect of recouping its substantial losses through horse sales even if its horses appreciated or residential use. This consideration further underscores the need for detailed analysis before drawing a conclusion that business-use structures could be expected to appreciate sufficiently to recoup past and future losses. somewhat, which is speculative on the record before us. This factor favors respondent. 5. Success of Taxpayer in Carrying On Similar or Dissimilar Activities The fact that a taxpayer has engaged in similar activities in the past and converted them from unprofitable to profitable enterprises may indicate that the taxpayer is engaged in the present activity for profit, even though the activity is presently unprofitable. Treas. Reg. § 1.183-2(b)(5). In Wondries v. Commissioner, T.C. Memo. 2023-5, at *11, we ruled that a taxpayer's success in turning unprofitable car dealerships into profitable ones indicated that the taxpayer and his spouse were engaged in a dissimilar ranch business for profit. We already discussed Mr. Young's work experience supra OPINION Part II.C.2. There is no evidence that Mr. Young, who worked as an employee for various ranches, converted unprofitable enterprises to profitable ones. Neither is there any evidence that Ms. Young engaged in similar activities in any capacity. While we acknowledge that it was challenging for Ms. Young to assume a leadership role at ETI after Mr. Todd's death, ETI never reported any losses as far as the record discloses. Ms. Young founded her own stockbrokerage business, which she eventually sold, but the record does not disclose how profitable it was. This factor is neutral. 6. Taxpayer's History of Income or Losses with Respect to the Activity A series of losses in the initial or startup stage of an activity may not be an indication that the activity is not engaged in for profit. Treas. Reg. § 1.183-2(b)(6). Where losses continue to be sustained beyond the period which customarily would be necessary to bring the operation to profitable status, such continued losses, if not explainable as due to customary business risks or reverses, may be indicative that the activity is not engaged in for profit. Id. If losses are sustained because of unforeseen circumstances which are beyond the control of the taxpayer, such as drought, disease, fire, theft, weather damages, other involuntary conversions, or depressed market conditions, such losses would not be an indication that the activity is not engaged in for profit. Id. A series of years in which net income was realized would be strong evidence that the activity is engaged in for profit. "If an activity's cumulative losses are of such magnitude that an overall profit on the entire operation, including recoupment of past losses, could not possibly be achieved, the activity's history of losses is compelling evidence of a lack of intention to make a profit." Carmody v. Commissioner, T.C. Memo. 2016-225, at *25. Respondent argues that the 2008-22 income tax returns show a cumulative net loss of $2,953,041. We agree that they do. The Youngs argue that they had only a $616,560 cumulative net loss over the same period once interest, tax, and depreciation expenses are backed out. The Youngs have not explained the reason for their adjustments to the reported loss history, and there is inadequate foundation in the record for us to adopt them.44 Similar to operating expenses, financial costs incurred in connection with an activity such as interest, taxes, and depreciation may be properly viewed as bearing on taxpayers' intent to make a profit, at least absent a convincing explanation about why they do not. In any event, both respondent's calculation and the Youngs' calculation support the same conclusion. Cf. Himmel v. Commissioner, T.C. Memo. 2025-35, at *21-22. Each shows a large cumulative net loss, as well as an unbroken or nearly unbroken history of annual losses. (The Youngs show a $68,964 profit in 2021 after adjustments, whereas their unadjusted 2021 Schedule C shows a $271,648 loss.) Given the lengthy loss history-the only dispute as to which is its precise magnitude-we proceed to discuss the parties' arguments about the reasons for it. The Youngs argue that an unfortunate series of events prevented Pecandarosa Ranch from turning an early profit, including Mr. Todd's cancer diagnosis in 2009 (resulting in increased labor costs), severe drought conditions in Oklahoma during the years at issue (affecting harvest conditions and pecan prices), and Mr. Crose's decision not to harvest pecans in 2014 (resulting in no revenue from pecan farming 44 We informed the Youngs at trial that their proposed Exhibit 146-P, which we excluded from evidence and which a lay witness (the Youngs' accountant Luann Rinowski) prepared and described as a "normalized [earnings before interest, taxes, depreciation, and amortization] calculation," was "in the nature of expert testimony[,] and there are rules that should have been followed to designate this witness as an expert witness to testify regarding calculations designed to convince the Court that there was a profitability potential out of this business." See generally Rule 143(g). While we are concerned that the Youngs have attempted an end run around this ruling on brief, it is sufficient for us to state that without admissible testimony explaining it, the Youngs' adjusted loss history lacks an adequate foundation for us to connect it to the Youngs' intent. during 2014). We acknowledge these challenges, but the losses continued long after the years at issue and long after the activity was arguably in a startup phase.45 To name some of the largest ones, the 2020 Schedule C reflects a $871,580 net loss, and the Youngs' own adjusted loss history shows a $116,463 loss in 2019. The record does not clearly indicate why the losses continued, especially in view of the undated business plan's forecast that expenses would decrease substantially after the years at issue. We are mindful, however, that there are credible partial46 explanations for some of the early losses and that "farming is not the most profitable business in which one can be engaged."47 Faulconer v. Commissioner, 748 F.2d 890, 900 n.12 (4th Cir. 1984), rev'g and remanding T.C. Memo. 1983-165. On balance and under the circumstances here, though, this factor favors respondent. 7. Amount of Occasional Profits, if Any The amount of profits in relation to the amount of losses incurred, and in relation to the amount of a taxpayer's investment and the value of assets used in the activity, may demonstrate the taxpayer's intent. Treas. Reg. § 1.183-2(b)(7). An occasional small profit from an activity 45 It would be inconsistent for us to view specific undertakings, such as the event venue, as being in a startup phase long after the years at issue because the parties have litigated this case on the basis that the Pecandarosa Ranch activity was a single unified activity. Litigating this case as if each undertaking were a separate activity would have been a substantially different analytical undertaking from the path chosen by the parties. 46 Pecan harvesting was not the only undertaking during the years at issue, so Mr. Crose's absence does not explain losses related to other undertakings. Separately, the labor expense for 2010 was less than the loss shown for 2010 in the Youngs' adjusted loss table, so increased labor expenses do not entirely explain that year's loss although the 2011 labor expense was greater than the 2011 loss shown in the Youngs' table. 47 We are also mindful that some of the Pecandarosa Ranch losses are attributable to section 179 expenses for asset purchases, see supra notes 23 and 24, and that hypothetical sales of those assets at a later date may have generated section 1245 recapture income, see § 1245(a)(1) and (2) (providing that deductions allowable under section 179 are included in the recomputed basis of section 1245 property, which in turn generally increases the amount of ordinary income realized on the disposition of section 1245 property and recaptures the section 179 expense); see also § 179(d)(1)(B) (requiring section 179 property to be "section 1245 property (as defined in section 1245(a)(3))" unless it is qualified real property within the meaning of section 179(e)). Nonetheless, the Youngs have not pressed this point, except perhaps by implication from the depreciation addback they proposed. Moreover, the fact that some of their losses are attributable to expenses other than section 179 expenses negates the possibility that-even absent significant depreciation of those assets over time-their losses could be fully recouped through section 1245 recapture income. generating large losses, or from an activity in which the taxpayer has made a large investment, would not generally be determinative that the activity is engaged in for profit. Id. However, substantial profit, though only occasional, would generally be indicative that an activity is engaged in for profit, where the investment or losses are comparatively small. Id. Moreover, an opportunity to earn a substantial ultimate profit in a highly speculative venture is ordinarily sufficient to indicate that the activity is engaged in for profit even though losses or only occasional small profits are generated. Id. The Youngs never reported a profit from the Pecandarosa Ranch activity on any of their 2008-22 income tax returns. Even the Youngs' adjusted loss history shows only a single $68,964 annual profit, in 2021. This is merely an occasional small profit from an activity generating large losses and in which large investments have been made. The record does not indicate that the Pecandarosa Ranch activity was a highly speculative venture overall despite the potential for winning team roping prizes of unestablished amounts. Cf. Gallegos, T.C. Memo. 2021-25, at *23. This factor favors respondent. 8. Financial Status of Taxpayer The fact that a taxpayer does not have substantial income or capital from sources other than the activity may indicate that an activity is engaged in for profit. Treas. Reg. § 1.183-2(b)(8). Substantial income from sources other than the activity (particularly if the losses from the activity generate substantial tax benefits) may indicate that the activity is not engaged in for profit especially if there are personal or recreational elements involved. Id. Ms. Young had substantial income from ETI.48 She (and, as applicable, Mr. Todd or Mr. Young) reported $15,985,429 of nonpassive passthrough income from ETI, as well as $2,942,958 of wages, for 2008-22. The reported losses from Pecandarosa Ranch for those years totaled $2,953,041, so the ETI income was substantial in relation to the reported 48 Also of note, ETI and the ranching activity were economically interdependent after the years at issue because ETI was a guarantor of the 2020 Regent Bank loan that Pecandarosa Ranch, LLC, used to construct the event center and undertake related projects. We do not rely heavily on that consideration, however, because it occurred long after the years at issue. losses, and the reported losses offset the ETI income.49 This factor favors respondent. 9. Elements of Personal Pleasure or Recreation The presence of personal motives in carrying on an activity may indicate that the activity is not engaged in for profit, especially where there are recreational or personal elements involved. Treas. Reg. § 1.183-2(b)(9). On the other hand, a profit motivation may be indicated where an activity lacks any appeal other than profit. Id. However, an activity will not be treated as not engaged in for profit merely because the taxpayer has purposes or motivations other than solely to make a profit. Id. The fact that the taxpayer derives personal pleasure from engaging in the activity is not sufficient to cause the activity to be classified as not engaged in for profit if the activity is in fact engaged in for profit as evidenced by other factors. Id. Mr. Young enjoyed farming and being in the country although he also credibly testified that he often worked past dark and that his work involved manual labor. If these were the only relevant facts, we might regard this factor as neutral. Cf. Jackson v. Commissioner, 59 T.C. 312, 317 (1972) ("[S]uffering has never been made a prerequisite to deductibility."). Nonetheless, Pecandarosa Ranch made major investments related to team roping during or just before the years at issue, including purchasing a $108,000 trailer, cf. supra note 37, and constructing an arena. Mr. Young participated in team roping long before he married Ms. Young-without any indication in the record that he treated it as a business or made profits from it-and continued to do so at Pecandarosa Ranch's expense. Mr. Young enjoyed team roping and participated in the United States Team Roping Championships, the World Series of Team Roping, and Allstar Team Roping. Team roping is distinguishable from farming in that it may constitute a sport or hobby even though it involves hard work. Cf. Gallegos, T.C. Memo. 2021-25, at *3-5. There was a significant recreational or personal element to the team roping undertaking, and this recreational or personal element was substantial to the Pecandarosa Ranch activity overall despite the existence of other, 49 This statement is still true if we substitute the $616,560 adjusted cumulative net loss figure preferred by the Youngs for the $2,953,041 reported loss figure. We emphatically reject the Youngs' argument that because their tax savings were not even greater, "[t]his shows that [the Youngs] were not and never have been motivated to incur large losses to escape paying their tax liabilities." more laborious undertakings. Cf. id. at *24-25. This factor favors respondent. 10. Conclusion Of the nine factors listed in Treasury Regulation § 1.183-2(b), six favor respondent, one favors the Youngs, and two are neutral. After weighing the factors and the facts and circumstances of this case, we hold that the Youngs did not have an actual and honest objective to operate Pecandarosa Ranch for a profit during the years at issue. The record is imprecise in several respects, but it leaves us with the firm impression that the Youngs did not have any profit motive for the ranching activity as of the years at issue. It is impossible to chronologically evaluate much of the testimony we heard and some of the documents in evidence. Lacking exact dates, we give little weight to evidence about lines of business that do not appear on the stipulated profit and loss statements until after the years at issue. In some cases there is no clear evidence at all that the Youngs planned them during the years at issue, let alone engaged in them; in others, the undated business plan created during the examination would provide the only scant evidence, but we do not credit Ms. Young's testimony that the plan was based on contemporaneous notes that do not appear in the record. Accordingly, we sustain respondent's disallowance of the Youngs' claimed loss deductions attributable to Pecandarosa Ranch for the years at issue on the ground that they did not engage in the ranching activity for profit within the meaning of section 183 during the years at issue. III. Accuracy-Related Penalties The last issue is whether the Youngs are liable for section 6662(a) accuracy-related penalties for the years at issue. We hold that they are. Respondent determined 20% accuracy-related penalties on the grounds that the underpayments are attributable to one or more of the following: negligence or disregard of rules or regulations, see § 6662(b)(1), (c); substantial understatements of income tax, see § 6662(b)(2), (d); substantial valuation misstatements, see § 6662(b)(3), (e); or disallowance of claimed tax benefits by reason of a transaction lacking economic substance, see § 6662(b)(6). The Commissioner bears the burden of production with respect to accuracy-related penalties. See § 7491(c). To satisfy that burden, the Commissioner must offer sufficient evidence to indicate that it is appropriate to impose the penalty or addition to tax. See Higbee v. Commissioner, 116 T.C. 438, 446 (2001). The Commissioner's burden of production also includes showing compliance with section 6751(b). See Graev v. Commissioner, 149 T.C. 485, 492-93 (2017), supplementing and overruling in part 147 T.C. 460 (2016). Once the Commissioner comes forward with sufficient evidence to show that it is appropriate to impose a particular penalty, the taxpayer has the burden of proof to show that the Commissioner's penalty determination is incorrect, including the burden of proving that penalties are inappropriate because of reasonable cause. See Higbee, 116 T.C. at 446-47. Respondent's Simultaneous Opening Brief addresses neither the substantial valuation misstatement ground nor the economic substance transaction ground for the penalties, so we deem those grounds to be conceded and do not discuss them further. See Mendes, 121 T.C. at 312-13. Section 6662(a) imposes a 20% penalty on the portion of an underpayment of tax attributable to any substantial understatement of income tax, see § 6662(b)(2), or negligence or disregard of rules or regulations, see § 6662(b)(1). An understatement is substantial if it exceeds the greater of (1) 10% of the tax required to be shown on the return for the taxable year or (2) $5,000. See § 6662(d)(1)(A). Negligence includes any failure to make a reasonable attempt to comply with the provisions of the Code, and disregard includes any careless, reckless, or intentional disregard. See § 6662(c). The understatements for the years at issue are substantial as an arithmetic matter. It is therefore unnecessary for us to determine whether the underpayments are attributable to negligence or disregard of rules or regulations. See Treas. Reg. § 1.6662-2(c) (providing that only one accuracy-related penalty for a given year may be applied with respect to any given portion of an underpayment, even if that portion is subject to the penalty on more than one ground). Section 6751(b) provides that, with certain exceptions not applicable here, the "initial determination" of a penalty or addition to tax must be "personally approved (in writing) by the immediate supervisor of the individual making such determination." We have interpreted section 6751(b) to require supervisory approval before the Internal Revenue Service (IRS) Examination Division formally notifies the taxpayer in writing that it has completed its work and made an unequivocal decision to assert penalties. See Belair Woods, LLC v. Commissioner, 154 T.C. 1, 15 (2020). In a nonprecedential opinion, the Tenth Circuit set a lower bar for section 6751(b) compliance, holding the requirement met so long as written supervisory approval is obtained by the date the IRS issues a Notice of Deficiency. See Minemyer v. Commissioner, Nos. 21-9006, et al., 2023 WL 314832, at *5 (10th Cir. Jan. 19, 2023), aff'g in part, rev'g in part and remanding T.C. Memo. 2020-99. We need not decide, however, which standard applies here. RA Hagelberg's immediate supervisor provided the requisite approval on December 30, 2016, over ten months before the issuance of the Notice of Deficiency on November 13, 2017. There is also no indication in the record-and the Youngs have not argued-that the Examination Division notified the Youngs in writing of a decision to assert penalties before RA Hagelberg's immediate supervisor approved the assertion of penalties. Respondent has thus met his burden of production with respect to the accuracy-related penalties. The Youngs, however, assert that they had reasonable cause for their position and acted in good faith. Section 6664(c)(1) provides that the penalty under section 6662(a) shall not apply to any portion of an underpayment if it is shown that there was reasonable cause for the taxpayer's position and the taxpayer acted in good faith. See Higbee, 116 T.C. at 448. This determination is made on a case-by-case basis, taking into account all of the pertinent facts and circumstances. See Treas. Reg. § 1.6664-4(b)(1). Generally, the most important factor in determining whether the section 6664(c)(1) reasonable cause and good faith exception applies is the extent of the taxpayer's effort to assess the proper tax liability. See Treas. Reg. § 1.6664-4(b)(1). Reliance on professional advice may constitute reasonable cause and good faith, but only if considering all the circumstances such reliance was reasonable. See id. paras. (b)(1), (c)(1); see also Freytag v. Commissioner, 89 T.C. 849, 888 (1987), aff'd, 904 F.2d 1011 (5th Cir. 1990), aff'd, 501 U.S. 868 (1991). Advice is "any communication . . . setting forth the analysis or conclusion of a person, other than the taxpayer, provided to (or for the benefit of) the taxpayer and on which the taxpayer relies, directly or indirectly, with respect to the imposition of the section 6662 accuracy-related penalty." Treas. Reg. § 1.6664-4(c)(2). Advice does not have to be in any particular form. Id. Reasonable cause exists if a taxpayer relies in good faith on the advice of a qualified tax adviser where the following three elements are present: (1) the adviser was a competent professional who had sufficient expertise to justify the reliance; (2) the taxpayer provided necessary and accurate information to the adviser; and (3) the taxpayer actually relied in good faith on the adviser's judgment. See Neonatology Assocs., P.A. v. Commissioner, 115 T.C. 43, 99 (2000), aff'd, 299 F.3d 221 (3d Cir. 2002). There is no credible evidence in the record that the Youngs took any substantial steps to ascertain their proper tax liabilities or the application of section 183. The Youngs argue that they relied on Ms. Burch to prepare their tax returns for the years at issue. Mere return preparation, however, does not constitute advice. See Neonatology Assocs., P.A., 115 T.C. at 100 ("The mere fact that a certified public accountant has prepared a tax return does not mean that he or she has opined on any or all of the items reported therein."); Flume v. Commissioner, T.C. Memo. 2020-80, at *37 ("Simply employing a tax return preparer for the years at issue does not permit [the taxpayers] to avoid accuracy-related penalties."). Respondent correctly notes that "[t]he record only reflects that Ms. Burch advised Ms. Young to keep books for Pecandarosa Ranch on QuickBooks, something Ms. Young already knew and had been doing for ETI for years in overseeing its accounting operations." Even with respect to that advice, Ms. Young implemented it only in 2015, after the years at issue. Ms. Burch did not testify, and the record contains no evidence of any other advice provided by her. The Youngs also argue that "all examined expenses were substantiated during the IRS audit." Nonetheless, the Youngs' proper tax liability is determined not only through substantiating Pecandarosa Ranch's expenses but also by determining whether Pecandarosa Ranch was engaged in for profit within the meaning of section 183. The Youngs did not make a reasonable effort to ascertain how that requirement applied for the years at issue. We have considered all of the parties' arguments and, to the extent they are not discussed herein, find them to be irrelevant, moot, or without merit. To reflect the foregoing, Decision will be entered for respondent.