After running successful La-Z-Boy stores in MI, her parents relocated to GA and started opening stores there for the trademarked cocoon. Her dad even got into the green building business, becoming an early exponent of Leadership in Energy and Environmental Design (LEED) certification. He successfully invested in a FL enterprise to get plastic waste out of streams. He even lectured on obtaining LEED certification at Western Carolina University in their construction management program. Dad and Mom sent Jessica Walters, T. C. Memo. 2022-17, filed 3/7/22, to law school, where she interned with the Carolina Mountain Land Conservancy.

But Jessica wasn’t interested in flogging furniture. So the family partnership transitioned into building/consulting environmentally-friendly homes. The flagship was Balsam Home, part of the Balsam Mountain Preserve, a low-density ecofriendly development.

Judge Wells takes up the tale.

“The development sells its landowners club memberships which include access to a golf course, tennis courts, a restaurant, hiking and mountain biking trails, horseback riding, and an educational facility that offers hikes and lessons on fly-fishing and on flora and fauna identification. In addition to private residences BMP has ten cottages,  featuring geothermal water and solar heating systems, where prospective owners may stay.” T. C. Memo. 2022-17, at p. 4.

The family partnership built Balsam Home.

True to their ecofriendly principles, “Balsam Home was constructed with various eco-friendly systems and materials. …while still under construction, Balsam Home received the Energy Star Qualified Home Certificate, which certified that the home met energy standards established by the United States Environmental Protection Agency. Balsam Home… was awarded the USGBC LEED for Homes Gold Certificate  (the highest LEED certification for homes)…. Balsam Home has (among other things) a wine cellar, a dry sauna, a putting green,  indoor and outdoor fireplaces, a dog wash, and a fully functional greenhouse.” T. C. Memo. 2022-17, at p. 4.

Just so you know, this is not a Section 42 low-income tax credit case.

The family held open houses and tours, touting their ecofriendliness and pitching their services. They lived off-site, but did use Balsam Home. They registered motor vehicles, stored wine in the wine cellar (I told you this isn’t a Section 42), used the golf course, and had DirectTV wired in.

They did engage in other deals, but none apparently got beyond the planning stage. They had started during the Black ’08. They did keep separate records for each venture the partnership was in, and did have income, but never covered the losses.

So it’s “goofy regulation” (Reg. Section 1.183-2(b)) time.

The separate records are neutral. While the family never explain their coding methods, their records are thorough. Even though interlarded with personal expenses ($18K for Atlanta Braves season tickets), it looks businesslike.

And Dad’s expertise plus Jessica’s training is enough. They consulted with experts when they built Balsam Home; Dad kept up his green training. And worked on the project personally.

“We find petitioner husband’s testimony credible. We believe that although petitioners employed a landscaping crew to assist with maintenance, they performed most of the maintenance themselves.  Additionally, petitioners’ work in furtherance of [partnership’s] business was not limited to the upkeep of Balsam Home or spending time at BMP. Petitioners engaged with potential clients, consistently advertised in the Western North Carolina Green Building Directory, and attempted to have various articles published about Balsam Home and the green building industry. Petitioner husband’s time dedicated to learning about eco-friendly building likewise shows that petitioners expended substantial time and effort in acquiring knowledge to develop the partnership’s green consulting business. We conclude that this factor weighs in favor of the partnership’s having a profit objective.” T. C. M<emo. 2022-17, at p. 12.

And the family had La-Z-Boy success in MI, transitioned successfully to GA, and Dad did serve on the Board of the FL clean-up hitters, selling out for a profit.

The Black ’08, however, is not enough to explain the continued losses of the partnership, nor is the residential real estate market speculative says Judge Wells, so IRS wins that one. I respectfully dissent as to the speculative nature of residential real estate, having been involved for 55 (count ’em, 55, and I have) years with residential real estate.

True, the family has money. But their income fluctuated over the years, and a lot of their net worth was created years before the years at issue. So that’s neutral.

Personal pleasure is a tough one. Dad hit the greens at the golf course, and that’s more fun than hitting the bricks. But the record doesn’t show one way or the other.

Bottom line is “(W)e recognize that the partnership’s efforts were not perfectly executed, but its actions overall fall in favor of a conclusion that it was seeking a profit.” T. C. Memo. 2022-17,at p. 17.

A Taishoff “Good Job” to Jessica’s trusty attorneys.