Nice work of you can get it, but Thomas D. Conrad and Margaret Joan Conrad, T. C. Memo. 2023-100, filed 8/7/23, get to deduct the costs of storing, repairing, and maintaining their airplane and yacht, which though owned by the Sub S of which they are 51.25% owners,  flow through to them. Judge Morrison denies them a cut of the depreciation, partly because Tom (he’s a Ph.D., so I’ll deny him the “Doc”) concedes the deduction, but also because the airplane was never placed in service “in a condition or state of readiness and availability for a specifically assigned function.” T. C. Memo. 2023-100, at p. 39. See my blogpost for the story of Mike Brown, “Not Ready For Prime Time,” 12/3/13, which story Judge Morrison quotes extensively. IRS also blows all the Section 274 strict substantiation requirements by not arguing same.

The CPAF and SNOD are not models of clarity, and the Boss Hossery is a wee bit slipshod, but gets by. IRS doesn’t dispute that the storing, repairing, and maintaining costs for plane and boat were paid in years claimed, and they were intended for use in trade or business (Tom’s investment advisory) to woo highrollers. Problem was Tom couldn’t fly the plane (although his flying lessons are deductible) and there aren’t enough pilots certified on this type to get one for gigs. And the yacht had been used once to woo the highrollers, although it was laid up for years at issue.

Their deductions for business use of their condo and home get honed down, although some carryforwards are allowed and some gets shunted to Sched A itemization, if they survive the AGI cutoff.

IRS appears to have waived the Section 6662(a) negligence chop, but preserved the five-and-ten substantial understatement chop. The depreciation deductions aren’t part of that count, as Judge Morrison finds good faith misunderstanding of the law on Tom’s part (Margaret sits this one out). But Tom’s omission of $260K of retirement drawdown income and some other shenanigans (see T. C. 2023-100, at pp. 85-86) mean everything else is in play for the Rule 155 beancount. If Tom’s delictions break that 10% or $5K barrier, the 20% chop is in play.

In short, Judge Morrison has to cite Feigh 11 (count ’em 11) times. “Our job is to consider the issues advanced by the parties, not to craft alternative arguments never raised.” T. C. 2023-100, at p. 34. For the backstory on Feigh, see my blogpost “The Golden Gophers vs Scholar John – Part Deux,” 5/15/19.

Judge Morrison does a heavy-duty tailoring and patching job on a really botched trial record. At one stage Tom appears to have had counsel, but is pro se on the trial; as for IRS and counsel…well,  least said, soonest mended.