Gurpreet S. Padda and Pamela B. Kane, 2020 T. C. Memo. 154, filed 11/16/20 complete today’s full house (five, count ’em, five) blogposts. Both Gur and Pam are doctors, but Gur is also materially participating via the 100-hour route in five restaurants and a brewery. Pam works in a pediatric clinic, so it’s all about Gur.

Gur’s practice involves Interventional Center for Pain Management, Inc., a C Corp., a pain-management practice. And he manages the pain of having his restaurant and brewery losses relegated to passive activity suspension by bringing before Judge Morrison such a great cloud of witnesses that paper, or even electrons, aren’t necessary.

Gur grouped some, but not all, so each stood on its own, so Gur roped in all the employees he could find to tell how he micromanaged them. IRS claimed Gur was too busy managing other peoples’ pain to do the chow-and-brew number.

“Padda did not use correspondence or emails with respect to the restaurants and the brewery. Instead he used the telephone and face-to-face meetings. Using these means of communications, Padda exercised tight control of many aspects of the restaurants and the brewery. In particular, he paid close attention to the quality and ingredients of the food and beverages. He also rigorously controlled the decor and appearance of the establishments. His employees confirmed his heavy involvement. They complained in their testimony about his micromanagement. Perhaps as a result of Padda’s efforts, the restaurants and the brewery were lavishly appointed. The food and beverages were of the highest quality. The restaurants and the brewery were also costly to operate. Year after year, they produced massive financial losses that largely wiped out Padda’s profits from his medical practice. Thus it was that Padda was a successful doctor and at the same time spent significant time on the restaurants and the brewery.” 2020 T. C. Memo. 154, at pp. 13-14.

And IRS stiped in Gur’s spreadsheets about the time he spent scoping out the restaurants.

Gur has a problem with a deemed distribution from the pain center. He used the Intervention credit card for personal stuff. He argues IRS allowed the deduction to Intervention. OK, says Judge Morrison, but y’all weren’t party to that.

“The duty of consistency is an obligation by which a representation made by a taxpayer to the IRS may be binding on the taxpayer if the IRS relies on the representation to its detriment. Even if the duty of consistency governs the IRS (as opposed to taxpayers), the record does not show that the IRS made a representation to Padda and Kane on which they detrimentally relied.” 2020 T. C. Memo. 154, at p. 19, footnote 8. (Citations omitted).

And of course they didn’t tell their trusty CPA the whole story (hi, Mr. Reilly), so they get a Section 6662 chop only for the year of the distribution from Intervention, as their chow-and-brew losses are allowed for all years at issue.