Donald E. Swanson, T.C. Memo. 2023-81, filed 6/29/23, retired from loading cargo and driving a city bus, and went fishing.. He had thirty (count ’em, thirty) happy years of fishing in AK, so he started a charter fishing operation. Don had health issues, but they were treated and didn’t keep him from his skipper role.

Don may have been a good fisherman, but a bad bookkeeper. Judge Pugh finds fault with Don’s lack of records several times, and sustains IRS’ bank deposits analysis. Don had rental income and got paid for doing some tax prep work.

Judge Pugh does the obligatory trudge through Reg. Section 1.183-2(b), the famous “goofy regulation” so-called by the late Judge Richard Posner and exhaustively cataloged by my colleague Peter Reilly, CPA.

As is common,  it’s the lack of records and no separate bank account for the fishing operation that sink Don’s fishing expeditions. Without records, how can an operator decide what strategies are unprofitable, and correct or eliminate them? Not only must one have records, but use them.

Merely taking steps to comply with local law, like getting a commercial fishing license and commercial insurance, isn’t enough. You’re not businesslike if the losses just keep on coming and you make no changes to your operations. And despite losses you buy an airplane and run up more losses.

Don was represented by Christopher Crago, Esq., and his students from the Zag LITC (that’s Gonzaga University School of Law Low Income Tax Clinic). Tough case.