Attorney-at-Law

THE “GOOFY” REGULATION

In Uncategorized on 06/19/2018 at 23:03

All y’all (I’m in Texas with my nearest and dearest, sweeter than Blue Bell Homemade Vanilla) will recall The (now-retired) 7 Cir Divebomber, Judge Richard Allen Posner, who blew off Reg. Section 1.183-2(b) as a ”goofy” regulation.

If not, see my blogpost “Amen, Judge Posner,” 12/22/16.

Well, today Judge Cohen, who eschews cognomens, trudges the weary nine (count ‘em, nine) factors in the hobby-vs.-profit checklist, and finds that Shane V. Robison and Robin S. Robison, 2018 T. C. Memo. 88, filed 6/19/18, were actually all-cattle, whatever the state of their hats.

And were out for a profit, notwithstanding five years of seven-figure Silicon Valley income and thirteen (count ‘em, thirteen) years of continuous six-figure cattle losses.

They bought the ranch, tried and bailed out of paint horsing and quarter horsing, got into a high-altitude cattle raising operation, and retained “…a local expert regarding brisket disease. At high elevations cattle are at risk of brisket disease, which causes fluid accumulation in a cow’s lung that can then cause it to suffocate. A cow with a low pulmonary artery pressure score (PAP score) indicates an animal with a greatly reduced risk of brisket disease.” 2018 T. C. Memo. 88, at p. 8. As a moist brisket barbecue lover, I entirely appreciate this…with a rich sauce and a cold Shiner.

And they had bushelbaskets full of records, some contemporaneous, some ex post facto. And the essential separate bank account and CPA.

They also hired a ranch manager, even though he hadn’t managed a registered ranch before.

“A profit motive may also be indicated if a taxpayer ‘employs competent and qualified persons to carry on such activity.’ Petitioners hired professionals to manage Robison Ranch, employing a full-time ranch manager and a ranch hand during the years in issue, both of whom lived on site.” 2018 T. C. Memo. 88, at p. 19.

Judge Cohen finds Shane and Robin are in it for the money.

But did they materially participate?

All their well-kept records don’t show hours. And their testimony shows they spent time, but most of it was investor-type oversight, looking at books and chatting up experts. Shane and Robin didn’t spend too much time “ridin’, rockin’, ropin’, poundin’ leather all day long,” as Fred Howard and Nat Vincent put it.

And finally, that “competent and qualified” ranch manager hands Shane and Robin the Section 469 passive loss rules kibosh.

“Petitioners’ activities in operating through the ranch manager suggest characterization of the activity as passive—that of an investor. That was the observation of the Court at the conclusion of the trial, and our impression has not been altered.” 2018 T. C. Memo. 88, at p. 24.

Well, Shane and Robin can always take those suspended multi-million-dollar losses against the profit (if any) when they sell.

Takeaway- That “goofy” regulation can be a trap.

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