On September 13, 2016, the Department assessed the Taxpayers for personal income tax, penalty, and interest for the tax years 2009 through 2015. On October 11, 2016, the Taxpayer filed a formal protest letter. The Taxpayers acknowledged that the portion of the assessment which related to Mrs. Hurtado’s business was taxable but argued that the Department was wrong when it disallowed a deduction for business losses at the federal level, increasing the tax due to New Mexico. The protest hinged upon whether Mr. Hurtado was allowed to deduct these losses from his ranching operation. The deduction of losses in excess of profits is disallowed by the state if the activity engaged in is determined not to be a for-profit activity. The determination of whether an activity is a for-profit business is made by examining nine factors. The Hearing Officer looked at each of these and decided that five of the factors had been meant. Some of the considerations were that the taxpayer had recently developed a formal business plan, had contracts with other property owners for grazing rights, and had bought land and equipment for the ranching operation. The Taxpayer has a degree in agriculture and is a member of the Farm Bureau and had consulted regularly with other ranchers. He had spent a substantial amount of time and effort in his ranching operation and expected that his assets, both cattle and land, would appreciate in value. Income had been made on the ranching operation, though the deductions taken for business losses have led to a net loss in recent years, and the Taxpayer did pay for the ranching operation with the income earned from its operations. Though other factors, the activity generating substantial losses with only occasional small profits, the Taxpayer being none reliant on the ranching operation for his livelihood, the activity being one that the Taxpayer obviously enjoys, suggested that the operation was not a for-profit business, the Hearing Officer decided that enough of these factors were met to conclude that it was for-profit and the deductions taken for business losses were appropriate. This having been decided the Hearing Officer ordered the portion of assessment related to the Taxpayer’s ranching operation be abated.
Ernesto and Nancy Hurtado