A federal judge recently found in favor of Center Ranch, breeder of earners of more than $2 million -- including 2012 NCHA Futurity Open Co-Champion CR Tuff Hearted Cat (pictured with Ronnie Rice) -- in a court case involving the Internal Revenue Service. • Photo by Hart Photos

Center Ranch Wins Case Against IRS

A federal judge recently ruled in favor of Center Ranch in a tax case, declaring that the Centerville, Texas-based cattle, hay and cutting horse operation was a for-profit business in spite of monetary losses.

Owned by Finis Welch, the 8,700-acre ranch is home to Equi-Stat Elite $2 Million Sire Woody Be Tuff, whose progeny include 2012 National Cutting Horse Association (NCHA) Futurity Open Co-Champion CR Tuff Hearted Cat (out of CR Cats Meow x High Brow Cat).

The business magazine Forbes, which first reported the story at forbes.com, called the ruling a “stunning victory” for the ranch.

The case was based on the contention by the Internal Revenue Service (IRS) that Welch and his ex-wife, Linda Waite, had tax deficiencies totaling nearly $5 million on federal income tax returns from 2007-2010 due to what the government alleged were unwarranted tax exemptions applied to the ranch. The IRS contended the exemptions were misapplied because Center Ranch’s activities – which resulted in losses each of the four years in question – were, in the eyes of regulators, part of a not for-profit venture.

One of Center Ranch’s attorneys, George W. Connelly, said the ruling demonstrates the importance of running a ranch or horse operation like any other business. He said even though the ranch didn’t make a profit during the years in question, Welch demonstrated his intention was to make a profit.

“He had a standing group of employees who were all experienced. The other activities, he changed the methods as well when something wasn’t working,” said Connelly, based in Houston, Texas, with Chamberlain Hrdlicka. “I think the bottom line is a combination of make investments when it matters, be willing to change when you find out something isn’t working and don’t give up easily.”

Center Ranch has topped the $2 million mark as an owner and breeder, according to Equi-Stat. Those figures do not include money won during the 2017 Futurity Open, where Center Ranch was represented in the Open finals as an owner by two progeny of Woody Be Tuff – CR Look At Me Now and CR Dualin Tuff. A Center Ranch-bred son of Boon Too Soon, CR Smart Boots, finished fourth for owner Sarco Creek Ranch, and a son of Woody Be Tuff, Docs Fanci Cabernet, tied for fourteenth for owner Gary Goodfried, of Flint, Texas.

In her ruling, Judge Elizabeth Crewson Paris cited the ranch’s organization and economic interrelation and Welch’s own actions as evidence he intended it to be a for-profit operation. The ranch had one manager, who oversaw all aspects of the ranch, and used its hay operation to feed cattle and the cattle to supply calves used to train the cutting horses.

Click here to read the Center Ranch ruling filed by Judge Elizabeth Crewson Paris.

In addition, Welch brought services in house – contracting with a veterinarian and starting a trucking company – that not only saved money on expenses but also generated income through outside clients. The judge also noted that Welch changed tactics – changing the focus of his cattle operation multiple times, for instance – in order to increase income. That the ranch’s horse and cattle operations were in a start-up phase, a time when more losses are possible, also factored into the judge’s decision.

For more on this story, subscribe to Quarter Horse News.