There’s been some back-and-forth in the trade press and even in mainstream media about art as a business, with some commentators averring that IRS was at war with the artists. I stated that wasn’t entirely the case. When someone has a source of income otherwise than from art (or any pleasurable activity), and yet claims one is in the art (or other) business for profit rather than solely for pleasure, while taking heavy duty deductions and losses from the pleasurable business, it does raise questions.

And Revenue Agents need not be art critics, or connoisseurs of these various activities, to start handing out deficiencies.

Case in point: Terry Gene Akey, 2014 T. C. Memo. 211, filed 10/8/14.

Judge Halpern deals with Terry Gene’s claimed losses in his sports memorabilia business based on Terry Gene’s unsubstantiated records (5,000 pages), with no tie-in in his post-trial brief as to what substantiates what.

Judge Halpern isn’t going to try: “Petitioner has in his briefs proposed findings of fact but has not accompanied those proposed findings by references to anything in the record. We have received into evidence eight binders of exhibits, consisting of over 5,000 pages provided by petitioner. Because petitioner has made it virtually impossible for the Court to verify any of his proposed findings that were objected to by respondent [IRS], and because he has violated Rule 151(e)(3), the Court, in making its findings, has disregarded all of petitioner’s proposed findings to which respondent has objected.” 2104 T. C. Memo. 211, at p. 4, footnote 1 (Citation omitted).

Terry Gene is also a periodic nonfiler and a habitual latefiler. This doesn’t help.

So even if you’re a serious devotee of your pleasurable craft, you need to keep records. And be prepared to substantiate deductions. If you want tax deductions, that is.