Leland v. Commissioner

In 2004, Clarence Leland (plaintiff), a lawyer in Jackson, Mississippi, purchased a 1,276-acre farm in Texas. Leland entered an agreement with local farmer Clinton Pigg, under which Pigg handled planting and harvesting, while Leland maintained the farm's infrastructure. Of the total acreage, about 130 acres were used for crops. In 2009, Pigg planted 120 acres and worked roughly 30 hours. In 2010, Pigg planted 60 acres but worked only about four hours before abandoning the crop. Leland handled most of the farm’s upkeep himself, with limited help from his son, a friend, and Pigg. Leland visited the farm several times a year, commuting about 16 hours each way. The farm had about 28 miles of roads that Leland regularly maintained to keep passable. He also trimmed trees, planted wheat to prevent erosion, and repaired fencing. Wild hogs caused significant damage, requiring Leland to spend considerable time eliminating them. Leland also maintained equipment and infrastructure, including repairing and replacing water lines and tractor parts. During his visits, Leland stayed in a small trailer that also required upkeep. Each time Leland left, he cleaned and winterized the trailer, disconnected vehicle batteries, and performed other necessary tasks. Although Leland kept no contemporaneous time records, reconstructed logs based on his calendar and receipts showed he spent 359.9 hours on farm-related activities in 2009 and 209.5 hours in 2010. Leland claimed farm-related deductions for those years. The commissioner of the Internal Revenue Service (defendant) assessed deficiencies, claiming Leland’s losses were limited under § 469. Leland petitioned the tax court for a redetermination, arguing that he materially participated in farming operations and was therefore not subject to § 469’s passive-activity loss limitations.