Judge Emin (“Eminent”) Toro is far too well-bred to address James M. Root and Valerie K. Root, T. C. Memo. 2025-51, filed 5/22/25, in such terms, but his findings of fact and opinion come to much the same thing.

Jim and Val wanted to build and operate a multi-purpose natural resource lodge which could provide exclusive upmarket lodging for paying guests. Jim and Val owned and operated a nationally-known fruit packing and processing operation they sold two years after they say they started the hospitality gig.

I’ll spare you the sad tale of the condemned construction project and the litigation that followed. Jim and Val paid $4 million in fees to recover $3 million. The property wasn’t zoned for commercial use.  Nobody could live there. Jim and Val didn’t have advertising, employees, or hospitality software, but they did have various times they claimed they started the hospitality gig, over a fifteen-year span.

Lest I be misunderstood, I understand a good deal of this is the work of Jim’s & Val’s trusty attorneys, trying to salvage an already-sunken ship. Jim and Val got took.

At the end, Judge Eminent has much somber reasoning and copious citation of precedent to the effect that to be a business, you have to be in shape to perform the activities the business demands. Just buying a site isn’t enough; even starting construction isn’t enough. At least you have to advertise and seek renters. And running freebies doesn’t get it.

Nor does getting a license to operate. There has to be activity.

“To summarize, although the Roots hosted some events on their property between 1995 and 2009, none of them included overnight stays at the lodge. Even when the Roots donated an overnight stay at their lodge, the guests ultimately stayed on another location on the property. Hosting on the property was occasional and isolated and insufficient to demonstrate the operation of a guest lodge.” T. C. Memo. 2025-51, at p. 16.

In short, for an NOL, you need a business and a loss.