Tax Court Rules that Farmer Legitimately Used 29 Old Tractors in Small Farming Operation

December 19, 2022 | By Jennifer Harrington

This case is Hoakison v. IRS, T.C. 2022-117 (U.S. Tax Court Dec. 5, 2022). 

On December 5, 2022, the United States Tax Court found that a farmer who had purchased 29 used tractors over the course of three years did purchase the tractors for legitimate business purposes. Consequently, the farmer’s IRC §179 expense deduction for those tractors was upheld. The taxpayer was also able to substantiate that the majority, but not all, of his pickup trucks were “qualified nonpersonal use vehicles” as defined under IRC §247(i). The Tax Court eliminated most of the accuracy related penalty assessed by IRS under §6662. The farmer was responsible for a penalty, however, for depreciation deductions that were inadvertently taken for property that was already expensed under §179. 


The taxpayer farmed row crops on 482 acres during the 2013-2015 years. He also had a calf-cow operation and worked full-time as a UPS employee. 

In an audit for tax years 2013-2015, the IRS determined that the farmer had significantly over-reported expenses, leading to a $134,591 underpayment and an accuracy-related penalty for each tax year. Before the trial, the farmer conceded that he had mistakenly depreciated 8 pieces of equipment for which he had previously taken a §179 deduction. The depreciation deduction for these items totaled $16,674 each year.

The farmer contested other IRS adjustments, however, primarily arguing that the IRS was wrongly characterizing qualified business expenses as non-deductible personal expenses.  As detailed below, the Tax Court largely agreed with the farmer.  

Tax Court Decision


Before 2013, the farmer had purchased 17 tractors that were used to farm. After a 2011 heart attack, the farmer purchased an additional 8 tractors in 2013, 12 tractors in 2014, and 9 tractors in 2015. The majority of the tractors were manufactured in the 1940s, 1950s, or 1960s. The farmer would keep multiple tractors at each of his five parcels and would typically equip each tractor with its own implement that would remain attached to the tractor year-after-year.  He explained that this allowed him to reduce the time and physical effort involved in taking the implements off and reattaching them.

The farmer claimed §179 deductions for all 29 tractors in the years they were purchased. The IRS argued that the tractors were primarily purchased for personal reasons and therefore did not qualify for §179 treatment. The IRS argued the farmer was a collector of antique tractors and that the tractors were purchased for nostalgic reasons, not business purposes. The IRS also argued that the tractors didn’t need to be purchased because the farmer already owned tractors that could perform the farming tasks.

The farmer responded by testifying at trial that each of the tractors was used in the farming operation. He testified that he would leave different tractors at different farms in order to reduce the amount of driving time between farms. It would take 45 to 60 minutes to drive a tractor between farms. The farmer further showed that he would leave implements attached to the tractor which would result in each tractor being equipped to do only one specific farming task. Finally, the farmer explained that he purchased older tractors because it was affordable, and he could repair the tractors himself.

The Court found in favor of the taxpayer on this issue. Not only was the farmer’s testimony credible, but the Court also found that the time constraints on the farmer due to his off-farm employment explained the number of tractors. Additionally, the Court found that cost savings and the ability to repair the tractors were business reasons for purchasing older tractors. Finally, the Court noted that having other tractors that could perform the same task was not relevant to the question of deductibility. Instead, the “only requirement is that the depreciable property be used in the taxpayer’s trade or business.”

Pickup Trucks

The farmer also claimed five pickup trucks as farm trucks. One truck had an attached hay bale stabber. Another truck was equipped with an air compressor and two 60-gallon fuel tanks. Two of the trucks had a trailer or flatbed continuously attached. The final truck had mud tires and was primarily used to drive into pastures. This truck was also occasionally used to drive the farmer to his job with UPS.

The farmer depreciated the five pickup trucks and deducted the expenses associated with the vehicles. The IRS argued that IRC §274(d) required the farmer to record all trips with the vehicles, detailing the purpose of the trip and the time and places of travel. The IRS argued that without meeting these “strict substantiation requirements,” the farmer could not take business deductions for any of the trucks.[i]

The farmer argued he was exempt from the strict substantiation requirements because all five trucks  were “qualified nonpersonal use vehicles” as defined under IRC §247(i). Treasury regulations clarify that a qualified nonpersonal use vehicle must be specially modified in a way that results in it being unlikely to be used for personal purposes. If a vehicle is a qualified nonpersonal use vehicle, then taxpayers do not need to meet the strict substantiation requirements to depreciate the vehicle and deduct associated expenses.

The Court found that the four of the five trucks were qualified nonpersonal use vehicles. The trucks with the hay bale stabber and fuel tanks qualified due to the nature of the modifications. The two trucks that were attached to a trailer and flatbed were also found to be qualified because the Court believed the testimony of the farmer that the trucks were attached at all times.  The Court allowed all claimed expenses associated with these four vehicles, including insurance, registration, and fuel.

However, the Court found that the truck modified with mud tires was not modified in a way that allowed the vehicle to be a qualified nonpersonal use vehicle. Therefore, the strict substantiation requirements were applicable to this truck. Because the farmer had no contemporaneous records for the vehicle, the Court disallowed the associated expenses.

Machine Shed

In 2012, the farmer built a machine shed where he stored a number of tractors. In 2013, he paid $2,979 to add electricity, $715.77 for gravel installation, and $16,048 to pour a concrete floor. In 2014, he added insulation to the building, which cost $4,473.11.  The taxpayers depreciated the machine shed, and expensed the additional work done on the machine shed in 2013-2015 as repair deductions.

The IRS argued that the use of the machines shed was split between personal and business use because it was used to store some of the 2013-2015 purchased tractors. Because the Court ruled that the tractors were purchased for business purposes, the Court allowed 100% of the claimed depreciation deductions. The Court did rule, however, that the gravel, electrical, concrete and added insulation costs were not expense deductions, but capital improvements.

Other Schedule F Expenses

In addition to these items, the Court upheld the farmer’s allocation of 65% of electrical usage to the farm operation, but reduced the business phone usage from 60% to 33.3%. Finally, the Court reduced the amount of the umbrella insurance policy premium allocated to the farm from 100% to 75% and disallowed the costs of several magazines as business expenses.

Accuracy Related Penalty and The Taxpayer’s Tax Advisor

Even after the Court’s adjustments, the farmer was subject to an accuracy related penalty under §6662(a) for each of the three years stemming from an understatement of tax. He argued that he should be excused from paying the penalty under §6664(c)(1) because he acted in good faith and reasonably relied on his tax advisor. The Court analyzed the argument against the three requirements for eliminating an accuracy-related penalty: (1) the advisor was competent, (2) the taxpayer provided necessary and accurate information to the advisor, and (3) the taxpayer relied in good faith on the advisor.

For 30 years, the farmer had employed the same farm tax advisor to prepare and file his tax returns. The advisor had been preparing returns for farmers since 1981. The advisor provided worksheets and guided the farmer on how to keep track of his income and expenses associated with the farm operation.

The Court found that the farmer was able to show that his advisor was competent and that he provided necessary information to the advisor. However, the Court found that the farmer acted unreasonably in expensing eight pieces of equipment under §179 and then later claiming depreciation deductions for the same pieces of equipment. The Court reasoned that the farmer should have known this was not proper. Therefore, the Court imposed an accuracy related penalty, but only upon the $16,674 duplicative depreciation deduction taken each year. The Court ruled that all other adjustments met the requirements of §6664(c)(1) and were not subject to an accuracy related penalty.

[i] IRC §280F.