Attorney-at-Law

HEADING FOR A FALL

In Uncategorized on 03/02/2021 at 15:29

Joe Gallegos is a 5-header. If you don’t know what a 5-header is (and I admit I didn’t until now), check out Joseph A. Gallegos and Joy K. Gallegos, 2021 T. C. Memo. 25, filed 3/2/21. Judge Mark V Holmes will tell you a lot more about heading and heeling than you wanted to know.

Spoiler alert – Joe is an earl-of-insurance (Medicare Advantage division) turned team roper. Joe is a mid-level half of a team roping duo, who claims he’s trying to make money, while IRS claims he’s in it for fun.

Judge Holmes has all the usual puns, but Joe is appealable to 5 Cir, so Judge Richard Posner’s “lame attempts at humor” 7 Cir jibe is off the menu.

It’s the usual trudge through the 1.183-2(a) “goofy regulation.” My colleague Peter Reilly CPA is an aficionado of the hobby loss rodeo, and will doubtless find Joe’s tale a worthy addition to his five-foot shelf. Of course, the Section 183(d) horse break is a nonstarter, as no gross income in excess of deductions for any two out of seven years, 2021 T. C. Memo. 25, at p. 11, footnote 7.

Joe is short on bookkeeping for his horsing around, but big on losses, better than $50K per year for each of the three (count ’em, three) years at issue. And his bookkeeping for his insurance gig shows he knows how to ride herd on that activity. He neither reports the team roping job nor the insurance gig separately, but does a one-size-fits-all Sched C, a definite no-no. And he has no separate bank account for the team roping.

But ya gotta love his trial testimony.

“We’re convinced here that Gallegos devoted a significant amount of time to team roping. He traveled to three roping competitions a month and practiced several hours a day, twice a day at times, even when he just wanted to ‘sit * * * and watch “The Big Bang Theory” and eat some potato chips.’” 2021 T. C. Memo. 25, at p. 17. Sounds like the Girl of My Dreams, a big TBBT fan, bar the potato chips.

“‘The presence of personal motives in carrying on of an activity may indicate that the activity is not engaged in for profit, especially where there are recreational or personal elements involved.’ Sec. 1.183-2(b)(9), Income Tax Regs. Mr. Gallegos admits that he enjoys team roping, but says Mrs. Gallegos does not. He also says that the horses ‘are not ridden for pleasure,’ but rather are ‘business assets’ that are for sale. He says that team roping ‘is extremely hard work, time consuming, physically demanding and often times flat out gross.’ But many hobbies can take a lot of time and energy while still being mostly a source of personal recreation. We also aren’t convinced that someone who grew up around horses would find the work ‘gross’.” 2021 T. C. Memo. 25, at pp. 24-25 (Citation omitted).

Joe had been team roping for almost 20 years before the years at issue, and never made a dime. He’d changed his insurance business from life and health to Medicare Advantage, and a made a bundle. Just let me tell you about the premiums I pay for my Medicare Advantage policy. But Joe stuck with the horses.

Judge Holmes sticks Joe for the deficiencies.

 

 

 

 

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