Judge Travis A. (“Tag”) Greaves has to figure out whether and when Gregg Michael Kellett, T. C. Memo. 2022-62, filed 6/14/22 opened his datamining operation, so he could currently deduct some of the expenses he paid in creating the same, and write off the rest per Section 195.

As collateral damage in Judge Tag Greaves’ reconnaissance in force, he demolishes Rev. Proc. 2000-50: “To the extent Rev. Proc. 2000-50 purports to establish the taxpayer’s entitlement to a deduction, therefore, we cannot sustain the rule without a statutory predicate.” T. C. Memo. 2022-62, at p. 16. The Rev. Proc. apparently intended to mitigate the Section 174 research constraint, the “go where no one has gone before” rule. Gregg used off-the-shelf stuff, with which his engineers tinkered to produce the datamining service, which earned no money in year at issue. And while IRS said in Rev. Proc. 2000-50 they “wouldn’t disturb” some startup research expense deductions even if they fell foul of Section 174, IRS is not estopped by a Rev. Proc., and even if IRS was, pore l’il ol’ Tax Court has no equitable jurisdiction.

The big question of course is whether Gregg’s expenses are deductible Section 195 start-ups. The hurdle here is Section 195(b)(1)(A)(ii), which denies any deduction if aggregate start-ups exceed $55,000 pre-opening. Gregg has no proof of what he paid besides what he claimed as Section 162s. But Section 195(b)(1)(B) saves whatever startup costs Gregg paid in opening month, if he can establish when that was.

But all is not lost. Maybe Gregg’s opening day happened during year at issue. Although Sections 195(c)(2)(A) and 7701(a)(11)(11)(B) say IRS will have regs stating when opening day for business takes place, there ain’t no such regs. 4 Cir, whence Gregg is Golsenized, says it’s when it’s a going concern, doing what it was organized to do. Now earning revenue usually begins out of the gate, but Gregg prioritized getting online and running, even giving stuff away free, and Judge Tag Greaves is down with that.

“The parties agree that [datamine] opened to the public in or around September 2015. The burden of establishing the opening date does not shift to respondent under section 7491(a)… because petitioner has not proposed, let alone introduced credible evidence of, an opening date. We therefore err on the side of respondent by postulating that petitioner opened the website at the end of the day on September 30, 2015.” T. C. Memo. 2022-62, at pp. 7-8.

So Cohan throws the first pitch on opening day.

Gregg gets what he paid in opening month, and loses the rest.

I give Gregg’s trusty attorney, a Jersey Boys alum, a Taishoff “Good Job.”