Earlier this year, Troy and Ann Hatten, two successful airline pilots made a cash investment for a limited partnership interest in a Florida orange grove farm. In addition to the cash obtained from investors, the grove's management borrowed a significant amount of money to purchase the assets required to operate the farm. The Hatten's investment adviser pointed out that their tax loss for the first year would be more than their initial cash investment. The next several years would bring more losses. The Hatten's feel confident about their investment in the orange grove.

Identify and discuss in detail the tax issues facing the Hattens.