Remuzzi v. Commissioner

Dr. Robert Remuzzi and his wife (plaintiffs), who had no farming experience, bought a large dilapidated farm in 1978 for personal pleasure and recreation. They hired Llewellyn Payne, an inexperienced and heavily indebted farmer, to run it, giving him a substantial loan and benefits in exchange. Over five years the Remuzzis lost an average of $32,000 a year on the farm while earning over $166,000 a year from other sources and enjoying significant tax benefits from the losses. As Payne's health declined and he eventually defaulted on his loan, the Remuzzis claimed even larger business-loss deductions on their 1981 and 1982 taxes, attributing the losses to hiring Payne's replacement and absorbing his default. The Commissioner of Internal Revenue (Commissioner) (defendant) disallowed the deductions, and the Remuzzis petitioned the tax court.