Dr. Henry Carry is a rich orthodontist. Eighteen years ago, he purchased a 100-acre apple orchard. The orchard had a small house on it, into which Henry moved the man he hired as the farm manager, Alfred. Henry then built a four bedroom house and a swimming pool. He spent nearly every weekend there after at the farm. Nearly every weekend he and his wife had two or more guests. However, Dr. Carry spent part of every Saturday morning while at the farm discussing matters relating to the farm with Alfred. From January 8 years ago to January of last year the gross receipts from the farm amounted to $80,000/year and the expenses, including $20,000 per year for the main house, averaged $120,000 per year. This year, Alfred decided to change the crop and as a result there was no gross income this year and the expenses were $105,000. Dr. Carry deducted the excess of expense over gross income each year as a loss under 172. In answering these questions, make sure to identify the extent to which Dr. Carry can claim deductions relating to farm operations even if he is only engaged in a hobby (26 U.S. Code section 183).

1. Is his farming activity presumptively engaged in for a profit? See 183(d) and the permanent Regulations.
2. Was Dr. Carry right to report his farm results for the past eight years as he did?
3. What about the present year?
4. Can he properly claim that his farm losses should be allowed because, in fact, the value of the farm land has been steadily rising? Assume his guaranteed-deductible local taxes and interest on the farm land are $25,000/year. See Reg. 1.183-1(d) and -2(b)(4).
5. Now assume Dr. Carry quits being a dentist, moves to the farm, fires Alfred and takes over the operation on a full-time basis. If the farm still runs at a loss, can Dr. Carry deduct those losses?