In 1978, Dr. Robert Remuzzi and his wife (plaintiffs) purchased and moved to a large dilapidated farm for their personal pleasure and recreation. The Remuzzis had no farming experience. The farm was operated by Llewellyn Payne, a farmer who had no experience operating a large farm and had a heavy debt load. In return for operating the farm, Payne received several benefits and a substantial loan from the Remuzzis. Between 1978 and 1982, the Remuzzis lost an average of $32,000 on farm operations each year. However, over those five years, the Remuzzis had an average annual income from other sources of over $166,000 and received substantial tax benefits due to the farm. Over this time, Payne’s health had declined. Payne gradually became unable to operate the farm, and he eventually defaulted on the loan. The Remuzzis attributed their large losses to the costs of hiring a replacement for Payne and of absorbing Payne’s default. The Remuzzis claimed business-loss deductions in their 1981 and 1982 federal taxes. The commissioner of internal revenue (commissioner) (defendant) determined that the Remuzzis’ losses were not tax deductible, and disallowed the deductions. The Remuzzis petitioned the tax court for a redetermination.