I never knew that genetically engineering deer was a thing, until I read the Alabama Tax Tribunal decision in the case of Richard and Sue Cribbs (link is to a search function) There are many endeavors where tax examiners will think you are not seriously trying to make money and will therefore disallow losses under Code Section 183, the so-called hobby loss rules. I have written about drag racing, track coaching, cattle ranching, Amway[independent business, owners, playing slot machines using the principles of feng shui and of course horses. Lots of horse cases. So now we have deer breeding although that might not be the term for it.
Losses
You can get a feel for what the Cribbs’s is about from their website. They have a spread of about 800 acres known as Mossy Oak in Alabama. They provide you with lodging and food and animals that you can shoot (fishing is also an option). In 2011 and 2012, the operation showed losses of $45,897 and $59,846 respectively. The Revenue Department wanted to disallow the losses based on lack of profit motive. Apparently the main concern was that the Cribbs family had done some hunting on the land.
The decision went through the standard nine-factor drill as Alabama follow federal tax principles in this matter.
Factor (1). The manner in which the taxpayer conducted the activity. Factor (2). The expertise of the taxpayer in carrying on the activity. Factor (3). The time and effort exerted by the taxpayer in conducting the activity. Factor (4). The expectation that the assets used in the activity will appreciate. Factor (5). The taxpayer’s success in similar or related activities. Factors (6) and (7). The taxpayer’s history of profits and losses, and the amounts of any occasional profits. Factor (8). The taxpayer’s financial status. Factor (9). The activity was for the taxpayer’s personal pleasure and recreation.
State Had A Weak Case
As they ran through the factors, I began thinking that the auditor should have been off fighting crime somewhere else. The court noted that Mr. Cribbs kept detailed records and had 64 accounting codes for the different types of expenses incurred. He also had to keep very detailed records on the deer that he bred to maintain his game breeder’s license with the Conservation Department. He also put in a lot of time at the site acing factors 1 through 3. He also won on factor 4, which merits more discussion below.
Not A Dumb Man Sitting In Alabama
Success in similar activities was a push. The history of profits was against the taxpayer, but the court noted that there were a lot of start-up expenses and that he had turned the corner in 2014. There was no evidence about taxpayer’s financial position and they called the enjoyment aspect more or less a push. They noted that when the family hunted they only shot the cull deer, the ones which not had developed the impressive racks that commanded the high prices from the paying hunters.
On the personal pleasure factor, Mr. Cribbs seems to have won the judge over when he said:
I’ve made money in every business I ever started and went into, and I didn’t go into this one —]if I went into it to be a gentleman farmer, I’m a sure enough dumb man sitting right here in Alabama.
In terms of assets likely to appreciate (Factor 4) is where we get to the heart of the business. The purpose of the selective breeding is to get deer with really impressive headgear. People will pay big bucks to shoot big bucks with impressive racks and of course like in the horse business you can get a lot for the semen of the well-bred bucks. In another one of my pieces, I discussed phantom mares. In further research, I learned how the deer semen is “harvested”. Trust me, you don’t want to know.
The taxpayer won and it really looks like the Department of Revenue should not have brought this case in the first place, but I am a little glad they did, because I learned about a whole new field.
As indicated, the examiner’s decision to find that the activity was not entered into for profit was her understanding that the Taxpayer’s family members were the ones that primarily hunted on the farm, and that the Taxpayer indicated that he did not intend to profit from the activity. The Taxpayer testified, however, that his family hunted only four times on the farm for cull deer during the two years in issue, and that he never indicated that he did not intend to profit from the activity. The examiner did not testify.
When viewed together, the above factors show that the Taxpayer entered into the activity for profit. The well-documented farm-related expenses claimed by the Taxpayers in the subject years should be allowed. The Department should recompute the Taxpayers’ liabilities accordingly and notify the Tax Tribunal of the adjusted amount due. A Final Order will then be entered.
A Controversial Business
Deer farms and genetically engineering deer to have impressive racks turns out to be very controversial. I have to admit when I read “The Taxpayer has four small two and one-half acre pens on the property where he keeps the genetically engineered deer that have been bred”, I started thinking that this might be the setting for an F. Paul Wilson novel. You will see critics of the practice using the term “Frankendeer”to describe some of the outcomes of breeding programs. There is also a sense that fenced preserves are kind of unsporting and that the people taking the trophies are more shooters than hunters.
This piece quotes Brian Murphy of the Quality Deer Management Association – “Most hunters find great disdain in a known outcome. That is not hunting. There has to be a high degree of not being successful. The deer has to have a fair chance to escape.”
QDMA has an official statement on the practice
On February 23, 2012 the Quality Deer ]Management Association (QDMA) issued a national press release urging its members and other concerned sportsmen in several states to contact their elected officials and urge them to oppose legislation initiated by the deer breeding industry that would enable introduction of captive deer breeding operations or expansion of these practices within those states.
QDMA supports the legal, ethical pursuit and taking of wild deer living in adequate native/naturalized habitat in a manner that does not give the hunter an unfair advantage and provides the hunted animals with a reasonable opportunity to escape the hunter. QDMA is not opposing high-fence operations that meet the above conditions.
Frankly, if I was a deer, I think a rifle with a scope would be kind of an unfair advantage, but that’s just me.
The Boone and Crocket Club , by its account the oldest wildlife conservation organization in North America, also frowns on frankendeer and will not score them in its record books.
Not being much of an outdoorsman, I really don’t have a dog in this fight. Apparently, so far, the “genetic engineering” is just really aggressive selective breeding. It’s not like somebody is breeding highly intelligent deer that can shoot back to make it even more of an even match. Also apparently deer farming can produce food on otherwise marginal agricultural land. It might be profitable enough that there won’t be a lot of hobby loss cases about it, but we’ll see.