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DRIVING AIN'T FARMING, SAYS TAX COURT

September 25, 2003

While they worked for software giant Oracle Corporation, Thomas and Susan Truskowsky had interests other than computers. They bought a farm about 99 miles from their home and raised Limousin cattle.

Like some other part-time farmers, they didn't make money every year. In 1996 and 1997 they deducted tax losses from their cattle operations. The IRS had other ideas.

The "passive activity" rules prevent taxpayers from deducting losses from activities in which they fail to "materially participate." The Truskowski's said they met the tax law's material participation requirements in two ways:

- They participated in the activity more than 500 hours each year, and
- They participated more than 100 hours, and more than anyone else.

The Tax Court found that they reached these thresholds by including the 99-mile drive to the farm in their participation hours - 296 driving hours in 1996 and 244 in 1997. According to the court, those hours don't count: "Commuting is an inherently personal activity and as such does not constitute 'work' in connection with a trade or business."

The result? Additional taxes of $17,656 for 1996 and $19,849 for 1997. The only consolation is that the "passive losses" disallowed carry forward to to offset farming income in later years.

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