In Uncategorized on 04/09/2014 at 23:18

But his name isn’t Paul Revere, unlike the horse in Frank Loesser’s 1950 musical. No, this horse is named Choosing Choice, and he was in the money nine times (six firsts and three seconds) out of 16 races, winning a grand total of $77K.

And no, I didn’t have a penny on him.

But Stefan A. Tolin sure did, and Judge Gale tells the whole horse tale in 2014 T. C. Memo. 65, filed 4/9/14.

Stef was a single-shingle lawyer in Minneapolis, MN, and like Peter J. (“Rip”) Van Wickler was interested in horses (but Stef was seriously involved); unlike fellow-lawyer Robin S. Trupp, Stef had his horsey losses allowed as active. For Rip’s sad story, see my blogpost “Horsing Around?”, 8/15/11, and for Robin’s unhorsing see my blogpost “Horsing Around Isn’t Enough”, 4/13/12.

A client introduced Stef to the joys of owning ponies, and he fell, big-time, although he was fascinated by horse racing from boyhood’s earliest hour. He bred Choosing Choice from a mare he had bought, and CC won the Houston Juvenile Stakes as a two-year old, and finished second in the Grade II $100K Rebel Stakes as a three-year old, but suffered a slab fracture in his right leg. And another leg injury ended CC’s racing career.

Stef had CC nicked (that is, had his pedigree checked, and it came up A++), but Stef couldn’t find a good stud farm until he got to Louisiana. Then Stef jumped in with both feet.

He got Tom Early, officer of the Louisiana Thoroughbred Breeders’ Association, on board as guide, philosopher and friend (and even got him to testify on the Tax Court trial). After canvassing the eligible stud farms in Sportsman’s Paradise, Stef settled (literally) on Butch Sebastien, and spent hours on the phone with Butch and Tom, and bloodstock agent Bud Thibodaux, when not jetting down from the Ten Thousand Lakes to the bayous aforesaid.

Stef reserved to himself the right to promote CC, and manifested his usual enthusiasm, cold-calling owners of eligible mares, donating a one-shot of CC’s DNA at a charity event, and making videos, pictures, descriptions and accounts of CC’s prowess.

Judge Gale canters through Stef’s unending quest through the years at issue, and finds his phone records, reconstructed logbooks, and credible testimony sufficient to show the magic 500 Section 469 hours of material participation in each such year.

Now before reciting the endless litany about post-event ballpark guesstimates (as IRS does), note Judge Gale’s comment: “Respondent’s disallowance is based solely on section 469. Accordingly, we deem respondent to have conceded that petitioner operated the thoroughbred activity with a profit motive, see sec. 183, that the expenses for which he claimed deductions were ordinary and necessary, see sec. 162, and that he maintained records adequate to substantiate the deductions.” 2014 T. C. Memo. 65, at p. 25. Heavy-duty concessions, these, so Stef had serious speed in this race.

Judge Gale: “At trial petitioner introduced a narrative summary in which he describes the work he performed in connection with the thoroughbred activity and estimates the time he spent performing such work for each of the years at issue. He prepared the summary with the assistance of his attorney in preparation for trial, using telephone records, credit card invoices, and other contemporaneous materials. For each year petitioner claims time for the following work done in connection with the thoroughbred activity: preparing and distributing promotional materials; telephone conversations with his associates, advisors, and potential customers; business trips to Louisiana; registering his horses for State and national awards; reviewing and placing mortality insurance on Choosing Choice; reviewing and paying bills; recordkeeping; and continuing education.” 2014 T. C. Memo. 65, at pp. 28-29.

Now, as Judge Holmes would say, pay attention, because here’s the kicker: “While the narrative summary is a postevent review of petitioner’s claimed participation in the thoroughbred activity, the parties stipulated his performance of many of the activities described therein, and a significant amount of credible third-party witness testimony and objective evidence indicates that it is an accurate depiction of his thoroughbred activity during the years at issue.” 2014 T. C. Memo. 65, at p. 29.

The phone records especially tip the balance in Stef’s favor, because Stef was in daily touch with his Louisiana chums and potential customers. Stef claims his telephone tales beat anything in the cases. And apparently he’s right.

IRS says Stef should have called his customers, actual and potential, as witnesses, but Judge Gale says that’s not necessary, and although Stef often flew down to Louisiana, it clearly was business and he was not there long enough for vacation.

And Stef wasn’t a passive investor; he was deeply involved in the day-to-day management and control of CC’s activities.

Most importantly, “(T)he nature and extent of the activities described in petitioner’s narrative summary are corroborated by phone records, third-party witness testimony, the parties’ comprehensive stipulations of fact, and other contemporaneous materials.” 2014 T. C. Memo. 65, at p. 48.

Looks like the IRS disregarded my advice. They stipulated and thereby capitulated.

  1. […] of me (Being a lawyer and all maybe he is not doing returns in early April).  His post is titled “I’ve Got The Horse Right Here.”  Don’t know what it is with tax bloggers and show tunes.  Probably the influence of George […]


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