In Uncategorized on 07/01/2019 at 17:02

May or may not be half-done, as the old saw has it, but Steven Austin Smith, 2019 T. C. Sum. Op. 12, filed 7/1/19 (that’s Prof. Steve to you, as he’s tenure-track at the U of Southern Connecticut) had certainly begun his vegan food exporting business. At least well enough to convince Judge Vasquez that Prof. Steve could write off his start-up expenses per Section 195, thereby thwarting IRS’ attempt to wild-card in the Section 195 argument post-SNOD.

Prof. Steve was hawking various non-animal alimentary products as a private label reseller around Jamaica, the Dominican Republic, Brazil, Argentina and Colombia. Although there was some interest, retailers were unwilling to give shelf space to specialized exotica.

Prof. Steve showed his travels to attend food fairs and his use of the associates he met while working for Procter & Gamble and Pepsico to market his stuff, but in the year at issue he ran up expenses and lost big.

Judge Vasquez: “In the matter before us, respondent’s notice of deficiency makes no mention of section 195, the text of section 195, or the principles upon which section 195 rests.  The record does not establish that respondent raised section 195 during the examination of petitioner’s income tax return or otherwise notified petitioner that section 195 was relevant to his determination.  In fact, respondent’s allowance of petitioner’s Schedule C deductions for advertising, legal and professional services, office expenses, supplies, and utilities in the notice of deficiency contradicts respondent’s section 195 argument.  Accordingly, respondent’s section 195 argument is a new matter, and respondent bears the burden of proof with respect to that argument.” 2019 T. C. Sum. Op. 12, at p. 8.

IRS fails to show Prof. Steve wasn’t actively running a business.

“The record in this case establishes that petitioner, through Worldwide, was actively engaged in the trade or business of selling vegan products in Colombia, Brazil, Jamaica, and the Dominican Republic during [year at issue].  In [previous year] petitioner completed his business plan for [his corp.], according to which he would purchase vegan products from domestic manufacturers and sell them for a profit in certain foreign countries.  During [year at issue] petitioner had an agreement with B, which permitted [his corp.] to sell and market B’s Soy Curls product in foreign countries.  [His corp.] also received an exclusive license from T to sell Seitan products in Brazil, Argentina, Colombia, Jamaica, and the Dominican Republic in the beginning of [year at issue].

“Having secured products to sell, petitioner actively marketed those products in several foreign countries through his own efforts and those of business associates.  Petitioner credibly testified that he attended food shows and other meetings in Colombia, Brazil, Jamaica, and the Dominican Republic, where he provided samples of [his corp.]’s products to local distributors and retailers.  Petitioner also credibly testified that he used a network of foreign business associates to market [his corp.]’s products and find potential customers.  The record in this case includes emails that corroborate petitioner’s extensive efforts to sell [his corp.]’s products.” 2019 T. C. Sum. Op. 12, at pp. 12-13. (Names and footnote omitted).

IRS couldn’t prove Prof. Steve wasn’t able to sell the veggies overseas.

So Prof. Steve wins, right?


Because substantiation. Judge Vasquez can only come up with a couple bucks (hi Judge Holmes) deductions beyond whatever IRS allowed. Prof. Steve might have been a good business operator, but a wretched bookkeeper.

And no evidence that Prof. Steve utilized a competent tax adviser, plus the five-and-ten chops at issue here were calculated untouched by human hands, thus neither Graev nor Clay.

Speaking of Graev and Clay, Judge James S (“Big Jim”) Halpern has a couple designated hitters, wherein he pelts IRS with Clay, as IRS maybe breathed chops before the Boss Hoss Section 6751(b) sign-off. See Nathaniel A. Carter & Stella C. Carter, et al., Docket No. 23621-15, filed 7/1/19.

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