Material participation’ is a key component in this case. Apply the Court’s decision to these numbers from me. Suppose his farm income was $80,000 and his farm expenses were $97,000. How does that affect his AGI?

 

The regulations provide seven exclusive tests for material participation in an activity. Sec. 1.469-5T(a), Temporary Income Tax Regs., 53 Fed. Reg. 5725-5726 (Feb. 25, 1988). An individual will be treated as materially participating in an activity for purposes of section 469 if and only if: (1) the individual participates in the activity for more than 500 hours during such year; (2) the individual's participation in the activity for the taxable year constitutes substantially all of the participation in such activity of all individuals (including individuals who are not owners of interests in the activity) for such year; (3) the individual participates in the activity for more than 100 hours during the taxable year, and such individual's participation in the activity for the taxable year is not less than [pg. 1750] the participation in [*8] the activity of any other individual (including individuals who are not owners of interests in the activity) for such year; (4) the activity is a significant participation activity for the taxable year, and the individual's aggregate participation in all significant participation activities during such year exceeds 500 hours; (5) the individual materially participated in the activity for any 5 taxable years (whether or not consecutive) during the 10 taxable years that immediately precede the taxable year; (6) the activity is a personal service activity, and the individual materially participated in the activity for any 3 taxable years (whether or not consecutive) preceding the taxable year; or (7) based on all of the facts and circumstances, the individual participates in the activity on a regular, continuous, and substantial basis during such year. Id. An individual may prove his or her participation in an activity by any reasonable means. Id. para. (f)(4), 53 Fed. Reg. 5727. Contemporaneous daily time reports, logs, or other similar documents are not required if the taxpayer is able to establish the extent of his participation by other reasonable means. Id. Reasonable means may include, but are not limited to, the identification of services performed over a period of time and the approximate number of hours spent performing such services during such period, based on appointment books, calendars, or other narrative summaries. Id. The phrase "reasonable means" is [*9] interpreted broadly, and temporary guidelines may not provide precise guidance. Goshorn v. Commissioner, T.C. Memo. 1993-578 [1993 RIA TC Memo 193,578]. However, a postevent "ballpark guesstimate" will not suffice. See Lee v. Commissioner, T.C. Memo. 2006-193 [2006 RIA TC Memo 12006-193]; Goshorn v. Commissioner, T.C. Memo. 1993-578 [1993 RIA TC Memo 193,578]. Petitioner's reconstructed logs, his receipts and invoices related to farm expenses, and his credible testimony are all reasonable means of calculating time spent on the farming activity during tax years 2009 and 2010. Petitioner's records and testimony establish that he spent 359.9 hours in 2009 and 209.5 hours in 2010 on farm-related activities. As noted, a taxpayer is treated as having materially participated in an activity if the taxpayer participates in the activity for more than 100 hours during the taxable year and the taxpayer's participation in the activity for the taxable year is not less than the participation of any other individual. Sec. [*10] 1.469-5T(a)(3), Temporary Income Tax Regs., supra. We are satisfied that petitioner's participation was not less than the participation of any other individual, including Mr. Pigg, Mr. Coke, and petitioners' son, during tax years 2009 and 2010. See id. Accordingly, petitioner materially participated in the farming activity during tax years 2009 and 2010, and the deductions attributable to that activity are not limited by section 469. Because we rule for petitioners on the deductibility of their losses under section 469, we also find that they are not liable for the accuracy-related penalties pursuant to section 6662(a) for tax years 2009 and 2010. In reaching our holding, we have considered all arguments made, and, to the extent not mentioned above, we conclude they are moot, irrelevant, or without merit.