In Uncategorized on 09/17/2018 at 17:16

Judge Paris is singing that Toby Keith 1993 hit for Jeff M. Potter and Marsha R. Potter, 2018 T. C. Memo. 153, filed 9/17/18.

It’s Jeff’s story. He was working as the employee of his wholly-owned C Corp as an IC salesman for his baby bro’s business of “bagging and potting and top soils, manures, peat, mulches, and rocks.” 2018 T. C. Memo. 153, at p. 4, footnote 3.

Baby bro and Jeff get bought out. Jeff wants to claim goodwill on account of his customer base, but that belonged to baby bro’s business. That business had the name and repute, unlike the King of Insurance in Harvey, ND, Harold Schmeets, star of my blogpost “His Name Is His Fame,” 10/15/12. Jeff signed onto the buy-out, when a competitor bought them out, but Jeff threw in the office furniture, equipment and vehicles and he got no separate money for that.

His salary as salesman is subject to SE, of course, and his buy-out from his deal with baby bro’s business is ordinary income because it was based on Jeff’s C Corp’s previous year’s commissions (quantity and quality of work), and Jeff had no goodwill to sell.

Now to the reason for today’s title. After Jeff sold out to baby bro’s business, Judge Paris puts it best.

“Want to be a Cowboy?” 2018 T. C. Memo. 153, at p. 6.

“With a bit of free time on his hands, a history of working long hours, and the desire to continue working, Mr. Potter began looking for something to fill his days.  Several years before the [potting earth] sale he had been introduced to the activity, which is a timed event where an individual rides a horse through a designated course while shooting a firearm at targets.  The activity is governed by two organizations–the Cowboy Mounted Shooting Association (CMSA), formed in the mid-1990s, and the Mounted Shooters of America (MSA), formed in 2000.” 2018 T. C. Memo. 153, at pp. 6-7. (Footnote omitted, but ya can’t make this stuff up.).

“The rider’s firearm is loaded with primer and black powder that will shoot approximately 20 feet and make contact with the targets, i.e., balloons.  The embers of the powder burst the balloons.” 2018 T. C. Memo. 153, at p. 7, footnote 8.
Only in America.

Jeff and his trusty old paint Dakota, campaigning under Jeff’s C Corp, which paid the entry fees, collected the prizes, and took all the expense deductions (which everyone agreed were correct), were championship grade. “By 2014 Mr. Potter was a successful competitor and had won several national titles in the activity, including the MSA nonpro world title and the amateur American Paint Horse Association world title, and finished second in the CMSA world competition.” 2018 T. C. Memo. 153, at p. 8, footnote 9.

The C Corp move was the idea of Jeff’s trusty CPA, who for 35 years did the Potters’ taxes.

Why the C Corp? Well, remember dear old Section 183, home of the “goofy regulation?” See my blogpost “Amen, Judge Posner,” 12/22/16.

“Respondent disallowed all of the claimed deductions associated with the activity and included the prize money won for each year as income to the Potters.  The parties then stipulated that all of the deductions had been properly substantiated and that if the Court found that the activity was for profit then Potter Sales properly claimed the deductions.  Through their stipulation the parties have recrafted the question to be who performed the activity–Mr. Potter in his individual capacity or Potter Sales as a corporation-because section 183 does not apply to C corporations.  See sec. 183(a) (“In the case of an activity engaged in by an individual or an S corporation, if such activity is not engaged in for profit, no deduction attributable to such activity shall be allowed under this chapter except as provided in this section.” (Emphasis added.)); sec. 1.183-1(a), Income Tax Regs. (stating that no inference may be drawn from section 183 and its regulations as to whether a C corporation is engaged in an activity for profit)….” 2018 T. C. Memo. 153, at pp. 17-18. (Citations omitted).

‘No evidence was entered into the record questioning [C Corp]’s corporate validity.  Indeed, respondent has conceded that the deductions related to the activity belong to [C Corp].  There is nothing to preclude [C Corp] from operating multiple trades or businesses or changing from one trade or business to another.  That is exactly what happened here; [C Corp] stopped selling potting soil and began operating the activity as its trade or business.  The fact that Mr. Potter was the named rider in the competitions does not preclude the activity from being that of [C Corp].  The Court finds that Mr. Potter received any prize winnings as [C Corp]’s nominee.  [C Corp] performed the activity as a trade or business; section 183 does not apply.” 2018 T. C. Memo. 18.

IRS wants a Graev reopener, but that fails because Jeff leveled with their trusty CPA, their trusty CPA was indubitably qualified with 35 years-plus, got all the info from Jeff and Jeff reasonably relied.

Jeff’s CPA is not named, but s/he gets a Taishoff “Good Job! First Class.”


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