Identify what qualifies as a business deduction for taxation

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Mr. Bouteilles Gerbeuses has been your long-time tax client. He has amassed an impressive portfolio of real estate, securities, and joint venture investments. His net worth is substantial. Despite all his material well-being, Mr. Gerbeuses wants to take on a new challenge, that of producing fine wines. He has not had any formal wine training, but he has decided to start his own winery, named Cuvee de Prestige. He will pattern it after the great wine houses of Europe.

He already owns several hundred acres of agriculturally zoned land in the wine producing region of the Noir Valley. It happens to adjoin his home in the Wemadeit Country Club and Retirement Resort subdivision. He anticipates a life of semi-retirement by engaging in the art of malolactic fermentation and blending of his blanc de blancs and pinot noir grapes into his own estate wine. He expects his start-up capital investment to be over $5 million and does not expect the first harvest to take place for at least seven years after the initial planting of grape vines. He expects to offset any losses by his other income.

Assuming Mr. Gerbeuses comes to you for tax advice on his new wine venture, what tax advice will you provide, and what, if any, ethical issues should be considered? Also, identify what qualifies as a business deduction for taxation purposes.

Reference no: EM13135854

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