In Uncategorized on 07/28/2014 at 17:45

Or, How Not To Do It

I can understand a little creativity in the tax world, and even some post hoc tax planning, but there comes a point–well, maybe it comes too late for Raymond E. Gardner and Sherry N. Gardner, 2014 T. C. Memo. 148, filed 7/28/14, as told by Judge Ruwe.

Ray did insurance big-time, and real estate medium-time, from his North Carolina home, when he went into the cattle-breeding business with a peripatetic cattle breeder from Indiana.

Except it wasn’t a business, and Ray loses the Section 183 roundup. I’ll spare you the cattle by-product that permeates this 70-page account of breached contracts (on both sides, that neither side pursued), unpaid bills, unpaid and unenforced promissory notes, unregistered genetics, endless spreadsheets with no substantiation (we call it “back-up” in the trade), and dubious testimony.

But the takeaway here is the post hoc tax planning.

“Due to the manner in which petitioner conducted his cattle operation, we take a critical view of the coinciding of the substantial increase in petitioner’s net loss from his cattle operation in the same year that the income from his insurance business and other ownership interests also substantially increased.

“We note that petitioner reported $780,729 of net losses for the taxable years 2001 through 2004. The 2005 tax year was the first year that petitioner reported a net income from his cattle operation. Coincidentally, the IRS began an examination of petitioner’s cattle operation during 2005. The initial appearance of a profit in the taxable year in which the IRS commenced an examination is conspicuous.

“We find that this factor is neutral.” 2014 T. C. Memo. 148, at pp. 59-60.

Maybe the factor is neutral, but I’m sure IRS’ reaction wasn’t. And maybe IRS’ reaction isn’t the only one.


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