EJB, the reason your farm might be subjected to more scrutiny by the IRS than some of these other businesses you are talking about is that the possibility and likelihood that your "farm expenses" are really just disguised personal expenses is much higher.
You move to the country, you want to enjoy the land, have a tractor, slaughter your own beef, etc. Why not do all of this stuff you enjoy and deduct the cost against your salary income? Many do it, and the vast majority have no problems with the IRS. However the danger of doing it for years and having 3 years worth of losses thrown out is all the back taxes and interest, and maybe penalties, you would have to come up with.
Its unlikely that Enron was anyone's hobby, or that your local grocery store is a hobby, even though they both might lose money. Running a grocery store is not fun, running a farm might be.
You only need to show that you are in it for the profit. If you have no intention of making a profit, then its not a business from the IRS standpoint. There is no one single factor that makes the farm a business, but many have been mentioned on this thread. Here are some factors that could positively affect your ability to sustain your farm loss:
1. You are a full time farmer. Thats all you do, and you don't have a huge portfolio of stocks and bonds to furnish your living.
2. You go about your farm in a business manner. You have a separate bank account. You keep businesslike records, etc.
3. Because of the manner in which you are going about your farm, there is a bonafide opportunity to make a profit.
4. The level of farm related expenses and equipment purchases is not disproportional to the size of the farming activity.
5. You actually make a profit 2 of every 5 years.
Alan L - Texas
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