(3) casualty and theft losses; and 



(4) net operating losses. ° 



Losses incurred in normal farm operations or in 

 profit transactions commonly appear as an excess of ' 

 deductions over income. Otherwise, the losses result * 

 from some determinable event or identifiable transaction 

 occurring during the tax year. 



An excess of deductions over gross income 

 constitutes a net operating loss, which traditionally 

 has been fully deductible from an individual's income 

 from other sources. To the extent that there remains a 

 net loss after gross income for the year has been set 

 off against it, the loss may be carried back three years 

 or carried forward 15 years to reduce taxes in those 

 years."' 



The deduction for farm losses and other income tax 

 provisions has been the subject of much criticism due 

 to tax sheltering and other practices that have arisen 

 under the tax laws. 



Recent studies indicate that the tax laws provide 

 opportunities for nonfarmers to reduce or eliminate tax 

 liability on their nonfarm income by investing in 

 farming. These laws, it has been found, allow nonfarm 

 investors to utilize tax losses from their farming 

 activities to offset their other income, thereby 

 enabling them to use farming as a tax shelter. ^^ 



Generally, a good tax shelter must contain the 

 following features: (1) large current deductions for 

 expenses, depreciation, and interest on borrowed money; 



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