No, you don’t have to suffer to prove you have a profit motive. But it helps if you worked hard and got hurt. Just ask Sydney L. Gutierrez-Chapin, star of Frank L. Chapin, Deceased, and Sydney L. Gutierrez-Chapin, et al., T. C. Memo. 2026-76, filed 8/27/26. The late Frank (that’s Frank CPA) and Sydney had a tangled trail over the six (count ’em, six) years at issue, so I’m not going to summarize all the ground Judge Vasquez covers.

But two (count ’em, two) points in his opinion are worth a look.

The late Frank and Sydney both grew up on farms and tended animals. At home in ID, they were quarter horse and Appaloosa breeders, ropers and racers. My colleague Peter Reilly CPA knows this story well. 

But here’s the kicker (and I mean kicker): “As with cattle, in the spring, petitioners monitored the horses ready to foal around the clock, including four to five times at night, and moved the horses with foals to separate areas. Petitioners have overseen the births of over 100 colts.

“Other responsibilities on the ranch included cutting, baling, and stacking hay. In addition to the field work, petitioners repaired the fencing and various buildings on the land. The physical labor needed to maintain the ranch took a considerable toll on petitioners. Additionally, both petitioners sustained injuries at different times from falling off or being kicked by horses.” T. C. Memo. 2026-76, at p, 8. 

And notwithstanding personal bankruptcy, the late Frank and Sydney stayed in the barn and in the saddle. True, the late Frank and Sydney were a trifle casual with their paperwork and stayed the course when others would’ve bailed. IRS folded some deductions if Judge Vasquez found the late Frank and Sydney had a profit motive.

Judge Vasquez says pain equals gain. “Section 183 does not require that taxpayers operate their ventures with perfect business acumen. Petitioners’ persistence in the face of hardship may reflect unusual business judgment, but it does not belie an honest profit motive, which we find petitioners to have established.” T. C. Memo. 2026-76, at p. 23.

Remember, the late Frank was a CPA. So how about bookkeeping?

“Respondent contends that petitioners are liable for the section 6662 penalties because they failed to keep, maintain, and produce organized records relating to their business income, expenses, net operating and capital losses, and Schedule F activity, resulting in their need to reconstruct numerous documents. Mr. Chapin prepared their 2009, 2010, 2011, and 2012 returns using working trial balances, balance sheets, and profit and loss statements. All income was recorded, regardless of the account in which it was deposited, including any cash received, and Mr. Chapin allocated expenses among personal expenses, expenses incurred in the accounting practice, and expenses incurred in their farming activity. He then reconciled each account every month. Petitioners kept their receipts, including those for personal expenses and organized them in ledger categories. To the extent that petitioners failed to effectively present that evidence at trial, we believe that petitioners’ age and the passage of time were significant contributing factors. Accordingly, we find that petitioners are not liable for accuracy-related penalties on the underpayments relating to respondent’s adjustments to income and disallowances of Schedules C and E deductions not subject to section 274(d).” T. C. Memo. 2026-78, at pp. 30-31.

Unhappily, Sydney “fell woefully short of the stringent requirements of Section 274(d)” and loses those deductions.