Attorney-at-Law

“SHEER MAGIC”

In Uncategorized on 07/05/2016 at 17:59

Richard Brewster Main, 2016 T. C. Memo. 127, filed 7/5/16, certainly thought so. Those words were spoken in an advertisement for the 1955 Plymouth, and RB was a specialist in 1950s Plymouths,  trying to restore those old Detroit relics to their pristine glory.

Only it was too expensive.

IRS claimed his Plymouth restoration gig was a hobby, but Judge Foley didn’t see it that way.

“Petitioner undoubtedly enjoyed working with Plymouths. See sec.1.183-2(b)(9), Income Tax Regs. Although his manner of carrying on this activity was unsophisticated, it was businesslike. See id. subpara. (1). He had experience operating a business and expertise relating to Plymouths; advertised online, in print, and at live events; traveled outside California to acquire cars at bargain prices; contracted with third parties to manufacture parts for him to resell and use in restorations; and abandoned unprofitable aspects of his automobile activity (i.e., he downsized his inventory and stopped contracting for manufactured parts). See id. subparas. (1), (2), (5). Furthermore, he devoted considerable time to, and handled all material aspects of, his automobile activity. See id. subpara. (3). Lastly, petitioner’s patent business was undergoing a downturn during the year in issue, and petitioner, a prudent businessman, would not have squandered his hard-earned money on an expensive hobby. See id. subpara. (8). In short, petitioner’s automobile activity was a business, and his primary objective was to make a profit.” 2016 T. C. Memo. 127, at p. 5.

Note the last point. It probably won the day for RB. He had no great income from other sources. Most hobby loss cases blow up when the loss-seeker turns out to have plenty of other income.

Some of RB’s Schedule C deductions get allowed, but his camcorder and wireless router get disallowed because they were not used exclusively for his business or at his business location. Anyway, RB didn’t have Section 274 substantiation.

And his attempt to avoid Section 6651(a)(1) late filing chop doesn’t work, because claiming you were unaware you had a tax liability doesn’t get it.

Takeaway: Hobbyist, use the checklist, but remember: lots of other income is a tough fence to jump.

 

 

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  1. […] Taishoff, “SHEER MAGIC” “Hobbyist, use the checklist, but remember: lots of other income is a tough fence to […]

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