## Facts

- Melvin and Naomi Nickerson, a self-employed Chicago advertising professional and a Chicago Board of Education employee, sought a future income source outside their primary employment.
- After several years of searching, they bought an 80-acre farm in Door County, Wisconsin, and later acquired an additional 40 acres.
- The farm had not operated as a dairy for about eight years and was in poor condition, with outdated or unusable equipment and depleted alfalfa acreage.
- The Nickersons leased the land to a tenant farmer for cash rent and for gradual conversion of acreage to more profitable crops; the rent was the only farm income during the years at issue.
- Mr. Nickerson traveled from Chicago to the farm frequently and undertook substantial work and expenditures to renovate buildings and improve the property.
- The Nickersons claimed deductions for farm-related expenses and losses; the Commissioner disallowed them under I.R.C. § 183 on the ground that profit was not their primary objective.
- The Tax Court agreed with the Commissioner and denied the deductions, finding the activity was not conducted with a primary profit goal.

## Issues

1. Whether the Tax Court clearly erred in finding that the Nickersons did not engage in the farm activity with the primary objective of making a profit within the meaning of I.R.C. § 183.

## Decision

- The Seventh Circuit reversed the Tax Court.
- The court held the Tax Court’s no-profit-motive finding was clearly erroneous based on the full record.
- The case was remanded for further proceedings consistent with treating the farm activity as engaged in for profit.

## Legal Principles

- Under I.R.C. § 183, deductions attributable to an activity are limited if the activity is not engaged in for profit; the inquiry focuses on whether the taxpayer’s primary objective is profit.
- Profit motive is determined by objective facts and circumstances, including regulatory factors such as the manner of carrying on the activity, the taxpayer’s preparation and expertise, time and effort devoted, expectation of asset appreciation, history of income or losses, the taxpayer’s financial status, and elements of recreation or personal enjoyment.
- A history of early losses does not, by itself, negate a profit objective, particularly where the activity reasonably requires a long start-up or rehabilitation period.
- Personal enjoyment or recreational potential does not defeat profit motive when objective evidence shows businesslike conduct and a coherent plan directed toward future profitability.
- Appellate review of the Tax Court’s factual findings applies the clearly erroneous standard; reversal is warranted when the reviewing court is firmly convinced a mistake occurred.

## Conclusion

The Seventh Circuit held that objective evidence of a methodical, long-term rehabilitation plan and sustained efforts to restore an idle dairy farm required the conclusion that the taxpayers’ primary objective was profit, making the Tax Court’s contrary finding clearly erroneous and the § 183 disallowance improper.


Nickerson v. Comm'r, 700 F.2d 402 (7th Cir. 1983)