In Uncategorized on 09/29/2020 at 16:05

Ronald J. Lucero and Mary L. Lucero, 2020 T. C. Memo. 136, filed 9/29/20, is another Section 469 passive-loss-against-passive-income real estate joust, with the exception that short-term rentals (fewer than seven days average customer use) is active, not passive. See Reg. 1.469-1T(e)(3)(ii)(A). And Ron’s and Mary’s beachfront property met the test.

IRS tried to wild-card in Section 280A personal use on the trial. IRS has BoP on such new matter, if same would require different evidence from petitioner than what IRS’ pleadings alleged.

Despite Ron’s mediocre performance on the stand, “…on this point we accept his broader claim that most of his trips to the property were for upkeep. If we accept his testimony that every trip petitioners made to the Sea Ranch property, other than at Christmas, was for repairs or maintenance, then the time they spent at the Sea Ranch property for personal purposes totaled fewer than 14 days in each year. Respondent did not dispute that petitioners rented the Sea Ranch property to tenants for 146 days in [Year One] and 152 days in [Year Two] or allege that petitioners charged any of their tenants below-market rent. As respondent did not present any evidence of petitioners’ expenses that were attributable to their personal use of the property, see sec. 280A(e), we conclude that section 280A does not limit any of the real estate loss deductions petitioners can claim with respect to the Sea Ranch property for the years in issue.” 2020 T. C. Memo. 136, at pp. 7-8.

But Ron and Mary flunk the 100-hours-and-nobody-else test. Ron and Mary had a professional managing agent running the place.

“Mr. Lucero’s time spent paying bills, coordinating with Sea Ranch Escapes, and preparing petitioners’ tax returns constitute investor activities that do not count toward the 100-hour requirement.

“We also exclude the time Mr. Lucero spent driving between the Sea Ranch property and his Sacramento home. We recognize that petitioners drove several hours each way, but they ‘bear the expense of commuting (driving time) because it is a personal expense unless an allocation for additional expenses can be made between personal and business expenses’.” 2020 T. C. Memo. 136, at p. 12. (Citations omitted).

Ron’s and Mary’s logbook (made up after audit had begun, so you can see where this is going) is suspect, unless you accept a common stereotype, which I’m sure Judge Pugh rejects.

“Additionally, Mr. Lucero’s log reported hours for tasks that appear excessive in relation to the task described, such as spending two hours shopping for coffee filters at Bed Bath & Beyond, and included time shopping both for the Sea Ranch property and for personal items, such as one hour shopping at Gualala Supermarket for 2 items for the Sea Ranch property (garbage bags and facial tissue) and more than 20 personal grocery items. We have found the credibility of a taxpayer’s records to be diminished when the number of hours reported appears excessive in relation to the task described.” 2020 T. C. Memo.136, at pp. 12-13. (Citations omitted.)

Obviously Judge Pugh’s career has happily been free of persons who can shop till they drop. For such as they, two hours in Bed Bath & Beyond barely constitutes a warm-up, even if they buy only one item; actually buying two business items and 20 (count ’em, 20) personal items in one hour in a supermarket wouldn’t make the team’s red-shirt freshman squad.

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