My good friend Peter Reilly, CPA, will want to add James D. Sullivan and Colleen M. Sullivan, T. C. Memo. 2026-13, filed 2/5/26, to his collection of successful Section 183 taxpayer wins.

True, Colleen’s mulching operation fails for want of documentation and for evidence that she abandoned the business when her mulching machine proved unsafe.

“With respect to Leaf-Cutter, Ms. Sullivan’s mulching business, we readily find that the Sullivans have failed to carry their burden of establishing that the activity was engaged in for profit. The Sullivans testified that the business was both established and terminated because of safety concerns….” T. C. Memo. 2026-13, at p. 14.

But their real estate development business and JD’s software operation survive.

JD had plenty of software development experience, spent his own money developing it (even dipping into his retirement money), kept a separate bank account, studied literature on the area he was working, cut expenses when revenue didn’t come in, and hired experts. Though the work satisfied his intellectual curiosity, his testimonial candor carried the day.

He and Colleen also had plenty of real estate development experience. They built and rehabbed homes in MN and MT  and MA, mostly with their own labor, and sold them. They lived in a tent for years in ME while trying to build a housing development and a new personal residence, showering at the YMCA until they got the water put in.

Judge Courtney D. (“CD”) Jones gigs them for poor bookkeeping, allocating too many expenses to the housing development and not enough to the lot where they intended to build their personal residence, but she Cohans that out.

Interestingly, IRS never challenged the amounts of their claimed deductions, only the profit motive. So they mostly win the software and real estate developing, and only get mulcted for mulch.