“To Highlanders, of course, Christmas is a pagan festival which they are perfectly prepared to enjoy as long as no one sees them doing it, but Hogmanay is the night of the year.” G. M. Fraser, The General Danced At Dawn.
My epigraph here is a warning to all those seeking to avoid the toils of Section 183, and a Hogmanay greeting to everyone else.
To the former, don’t let them see you having fun. At least, don’t let them see you having too much fun.
To the latter, Happy New Year. And no, I won’t be found in Times Square tonight blowing a vuvuzela or similar horror; I shall be at home, decently behind a glass of Piper- Heidsieck.
As for having too much fun, while no one said a profit-making enterprise must involve suffering (see my blogpost “And All That Jazz”, 8/14/13: as I said then “…that element of personal pleasure doesn’t negate a profit motive. You can have fun and make money.”), two taxpayers had way too much fun to escape the hobby-loss chop.
From 12/30/13, two T. C. Memos.
First up, Austin Otology Associates, 2013 T. C. Memo. 293, filed 12/30/13, which is really the story of the conjoined case Patrick W. Slater, II, and Robin H. Slater.
Though Pat is a neurotolgist of note, he’s at heart a Nimrod, in the Biblical sense (see Genesis 10, verses 8 through 10).
Pat invents a noise suppressor for shooters called Shooter’s Ear, and an ear cream to prevent swimmers’ ear, but to test the same goes off numerous times to British Columbia, to take part in guided hunts, the costs of which he deducts via his business.
Pat takes other dubious write-offs, but I’ll stick with the slaughter of animals.
Judge Goeke, clearly no inordinately enthusiastic sportsman: “We address the British Columbia trips first. Dr. Slater claims he took the trips to perform research in cold weather. However, Dr. Slater could have tested the products in the same conditions without purchasing expensive hunting trips. Outdoor shooting ranges would have provided the same conditions as the guided hunts at a fraction of the cost.” 2013 T. C. Memo. 293, at p. 15.
Moreover, “Dr. Slater enjoys hunting. He took hunting trips and leased hunting property before he began developing Shooter’s Ear. Dr. Slater could have performed his research without hunting, and he spent only a small portion of his time on the trips documenting his research. On these facts we find that petitioners have not clearly established that the principal character of the trips was the active conduct of Austin Otology’s business. Therefore, the expenses did not directly relate to the active conduct of a trade or business, and Austin Otology improperly deducted them.” 2013 T. C. Memo. 293, at pp. 15-16.
Oh yes, Pat also wrote off the taxidermy expenses for his trophies.
Next up is (or are) Travis A. Mathis and Bettina C. Jary-Mathis, 2013 T. C. Memo. 294, filed 12/30/13, but it’s really Bettina’s story, although Travis, as heir to the Brown & Root engineering fortune, supplies the moolah wherewith Bettina disports herself.
Bettina is a great fan of cutting horses. No, not the kind that get the “G” in the racing form. Her cutting horses are those used by cowhands to isolate individual members of a cow herd, so as to “rope ‘em and brand ‘em and bob off their tails” with a loud whoopie-ti-yi-yo.
Ever since she could toddle round the corral, Bettina was a devotee of the cutting horse. At first she tried training and selling, but the best trainers wouldn’t go on retainer, as they wanted to exhibit their craft in many stables. Of course the training operation lost money.
Then Bettina turned to breeding. She studied bloodlines, took a seminar, made a business plan, hired a bookkeeper to record every expenditure and kept the same CPA preparing her tax returns for all the years she ran her ranch.
But the switch from training to breeding wasn’t starting a new activity. The two are too closely related.
Besides, “The current and expected losses of an activity should not be of such a magnitude that an overall profit going forward would not be possible. Bessenyey v. Commissioner, 45 T.C. 261, 274 (1965), aff’d, 379 F.2d 252 (2d Cir. 1967). Petitioners have accumulated over $9 million in losses from their cutting horse activity. It is unrealistic to expect that petitioners would not continue to accumulate significant losses. They have presented no convincing evidence that future profits could possibly offset these losses.” 2013 T. C. Memo. 294, at p. 16.
But ultimately, Bettina was having too much fun. “After weighing all the facts and circumstances in light of the relevant factors, we conclude that petitioners did not engage in their cutting horse activity with the requisite profit objective. Mrs. Jary-Mathis is determined to be a successful horsewoman. She wants to build a reputation as a producer of top-level cutting horses. However, she has pursued this goal independently of any desire to earn profits. She has continued training and breeding cutting horses for 17 years without ever approaching profitability, yet she has never seriously considered discontinuing operations.” 2013 T. C. Memo. 294, at p. 18.
The CPA helps Bettina avoid the 20% penalty, however.