In Uncategorized on 01/28/2021 at 18:09

If you just finished reading my blogpost “Go Down, Moses,” of even date herewith (as my high-priced colleagues would say), you’re doubtless hanging breathless on the fate of Stephen Whatley and Lucile M. Whatley, 2021 T. C. Memo. 11, filed 1/28/21, part of Kevin Sells’ als, who starred in the aforementioned, and was tried with them, but this part was briefed separately, as it involves different issues.

It’s Steve’s story. Steve said he was a cattle farmer, although he owned no cattle until the last of the five (count ’em, five) years at issue. Steve’s day job was as a supersuccessful banker. He was chairman, president, CEO and largest stockholder of the bank which he founded, although he was the scion of eleven (count ’em, eleven) generations of farmers in Lee County, AL. He did pick cotton as a boy, and ran a timber business for two years in his youth, some 35 years ago. He was always a worker, and in his seventies was putting in 70 hour weeks running from branch to branch, and taking care of business.

He did put in 750 hours a year at the farm.

By this time, I’m sure my colleague Peter Reilly, CPA, is marking down Steve for his “you can win a Section 183” handbook, to show his readers how not to do it. And Judge Holmes does the homework, with a bow to that most-cited jurist, Judge Richard Posner, now retired from 7 Cir.

“The Seventh Circuit has called this open-ended test of objective factors of subjective intent “goofy” and has chosen not to ‘wad[e] through the nine factors,’ but instead to take a more holistic approach. Roberts v. Commissioner, 820 F.3d 247, 250, 254 (7th Cir. 2016), rev’g T.C. Memo. 2014-74. This case, though, is appealable to the Eleventh Circuit. So we’ll trudge along the well-blazed trail and address each specific factor, as well as any other additional facts we find important to determine if Whatley was engaged in farming for profit.” 2021 T. C. Memo. 11, at p. 15.

Though a banker, Steve’s bookkeeping was such that he would have fired any of his bank’s employees who did likewise.

He was in the Conservation Reserve Program, whereby the guvmint paid him to do nothing with the land during the years at issue.

He did some timbering research, as the land had trees, but the extent and particulars thereof never made it into the record in sufficient detail to give Steve a winning factor. His 35-year-old timbering operation experience didn’t help, either.

Steve put a first-class dwelling on the farm. Judge Holmes does such a beautiful job describing it, that if ever he retires from Tax Court, he’ll be a great success as a real estate salesman. But Steve so thoroughly intertwangles his home mortgage deduction with his disallowed farm mortgage deduction that Section 163 doesn’t help him.

But claiming he’s a cattle farmer really caps it off.

“As to the farm’s cattle operation, Whatley explained that he’d wanted to introduce cattle ‘from day one.’ Whatley testified that he consulted two cattle experts for advice, but those men managed much larger herds–600 and 1,500 head respectively–than what Whatley could reasonably expect to put on his property. Whatley, however, could not recall when this consultation took place or what advice he received. In any event, he didn’t actually have cattle on his property until at least 2008, right after he learned that the IRS was going to audit him. And he explained that many of the activities that he reported as related to cattle were really activities that he undertook in preparation for cattle that would arrive sometime in the future.” 2021 T. C. Memo. 11, at p. 8.

There’s twenty-six (count ’em, twenty-six) pages more, but I guess we can stop here.


IRS does the Michael Corleone number when it comes to Section 6751(b) Boss Hossery, so no chops.


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