It’s another taxpayer win over the goofy regulation (Reg. Section 1.183-2(b)) for Kenward F. Kolar, Jr., T. C. Memo. 2026-15, filed 2/9/26, although it’s closer than most. Of the 9 I(count ’em, 9) factors therein, Ken got 4 (count ’em, 4), IRS got 3 (count ’em, 3), with 2 (count ’em, 2) stuck in neutral.

Ken was a multi-generational TX rancher, but the ranch was in bad shape when he got it, and he had to work long and hard to try to get profitable cattlebreeding. Judge Kashi (“My or the High”) Way doesn’t let Ken conjoin his oil royalty income with the ranch, finding them too dissimilar, as is land appreciation, forcing Ken to pay tax on the oil royalties without the offsetting ranching deductions. But his wife’s separate bank account for the business and her careful recordkeeping make IRS concede the amounts of Ken’s deductions on the trial. Ken concedes the 6651(a)(1) and (2) late file and pay, and 6654 no estimated add-ons.

Ken’s a good witness on the trial. 

But I want to point out again that a separate bank account and good bookkeeping are keys. It’s the first thing Judge Way mentions that bear on the goofy regulation.

“During this period, Mrs. Kolar served as the bookkeeper for the Kolar ranch and kept records that the couple would report to their certified public accountant. The Kolar ranch had a checking account for ranch operations that was separate from the account used by Mr. and Mrs. Kolar for their household expenses. Mrs. Kolar had a multistep recordkeeping process. She maintained a check register along with a ‘category’ book for recording daily income and expenses. She also had a ‘weekly book’ which she would prepare and use to go over the numbers with Mr. Kolar. She then prepared a monthly Excel spreadsheet and a final yearend spreadsheet documenting Kolar ranch income and expenses.” T. C. Memo. 2026-15, at p. 4.

I note IRS claims that Ken got personal pleasure in teaching his son how to be a cowboy. Judge Way blows that away.

“Respondent also argues that Mr. Kolar’s son participates in ranching activity and that Mr. Kolar derives pleasure from being able to bond with his son in this way. We do not find this argument compelling. Mr. Kolar’s son was two years old during the year at issue, so it is unlikely that he participated in ranching activity in any meaningful way during that year. Moreover, we do not view training one’s children to farm and ranch in the hope that they will one day take over the family business as inconsistent with a profit motive. Indeed, it is often the case that family members, including older minor children, participate in the running of profitable small businesses. Viewed in this light, Mr. Kolar’s decision to have his son participate in ranching activities supports a profit motive.” T. C. Memo. 2026-15, at pp. 15-16.

Perhaps the young man, like Johnny Mercer’s “old cowhand from the Rio Grande,” learned to ride ‘fore he learned to stand.