All y’all (warming up for visit to nearest and dearest in The Bayou City later this month) will remember 5 Cir’s interest in discounts in the run-up to MoneyGram International, Inc. and Subsidiaries, 153 T.C. 9, filed 12/3/19. What, no? I’m aghast. So check out my blogpost “Maybe You Can Bank On It,” 2/15/17.

When Tax Court zapped MoneyGram for taking $82 million in worthless securities losses by claiming to be a bank, 5 Cir said they were a wee bit casual about whether or not MoneyGram made discounts. Don’t confuse “made discounts” with “gave discounts.” Banks make discounts, they don’t give discounts.

The classic definition I learned in the negotiable instruments class from the late lamented Norm Penny, Esq., on The Hill Far Above, was that banks took in third-party promissory notes payable to the bank’s customer at a discount from face value and collected face, the difference between what bank gave the customer and the face amount collected being the “discount,” or interest on a loan.

Looks like I got Prof. Penny’s concept.

“If a bank customer needing immediate cash held a ‘bill’ or promissory note from a third party (perhaps due in 180 days), he might ask his bank to ‘discount’ the bill by giving him (say) 90 cents on the dollar in exchange for the bill.  As the Supreme Court explained in 1823, ‘a discount by a bank means, ex vi termini, a deduction or draw-back made upon its advances or loans of money, upon negotiable paper, or other evidences of debt, payable at a future day, which are transferred to the bank.” Fleckner v. Bank of U.S., 21 U.S. (8 Wheat) 338, 350-351 (1823).  In effect, a ‘bank discount’ is the ‘interest that a bank deducts in advance of the maturation of a note.’  Black’s Law Dictionary (11th ed. 2019).  The bank’s customer receives proceeds reduced by the unstated interest, and the bank receives the unstated interest when the note is repaid at maturity.” 153 T. C. 9, at pp. 68-69.

MoneyGram provides payment services, that is, collects money and a fee from a customer, and transmits it to a third party, whether at home or abroad. Everyone agrees that doesn’t make MoneyGram a bank. Treasury regulates those separately from banks.

But MoneyGram sells money orders, either in its name or co-branded. These are essentially checks, drawn on MoneyGram’s own deposits, which, according to a survey, the purchasers can use “’to pay personal bills’ (65%), ‘to pay for goods or services’ (43%), ‘to help a friend’ (21%), to make ‘a gift’ (15%), and ‘to invest in a business’ (4%).  Customers in the survey indicated that they preferred money orders over other payment methods, such as cash or bank checks, because of the ‘security of * * * [the] transaction’ (41%), because the ‘transaction can be tracked’ (40%), because money orders are ‘required by biller’ (32%), and because cash ‘is not accepted everywhere’ (23%).” 153 T. C. 9, at p. 8.

Banks hold money for safekeeping. None of the foregoing is “safekeeping.”

MoneyGram has agents who are empowered to issue MoneyGram’s money orders, pursuant to a Master Trust Agreement (MTA). And thereby hangs the cliché.

“MoneyGram historically has taken the position that an MTA creates an express trust that gives it a preferred position over its agent’s other creditors in the event of its agent’s bankruptcy.  In at least 27 bankruptcy proceedings filed by its agents, MoneyGram has contended that it is not an ordinary creditor because the MTA gives rise to a fiduciary relationship between MoneyGram and its agent.  For that reason MoneyGram has asserted that its agent’s failure to pay over Trust Funds constituted ‘defalcation while acting in a fiduciary capacity,’ 11 U.S.C. sec. 523(a)(4) (2006), so that the agent’s debts to MoneyGram were not dischargeable.” 153 T. C. 9, at p. 10 (Footnote omitted).

Thus MoneyGram doesn’t lend money to its money-order agents or to the people who buy the money orders. They sell a product.

The basis for the $82 million hit MoneyGram wants to write off is that MoneyGram invested in debt instruments (commercial paper, or CP) that it purchased below par (thus generating OID, or Original Issue Discount), but OID wasn’t a loan to a customer. They were investments required by State regulators.

“In making these investments MoneyGram did not lend money to a customer by discounting a note.  Any lending was done by the underwriters who initially purchased CP from the issuer.  By acquiring CP in the aftermarket, MoneyGram was not lending to the corporation that issued the CP but was simply acquiring an asset from another investor.  The fact that MoneyGram—like all other investors in the $1.78 trillion CP market–would receive OID as part of its investment return does not mean that it was “making discounts” within the meaning of section 581.  Money market funds held massive investments in CP during 2007 and 2008, but they could not plausibly contend that they ‘made discounts’ for purposes of this statute.

“Assuming arguendo that MoneyGram’s purchases of CP directly from issuers involved ‘making discounts,’ we find that petitioner has not shown that investing in such CP was a “substantial part” of its business, either in a quantitative or in a qualitative sense.  Over the course of 2007 MoneyGram invested more than $66 billion in CP, about 8.5% of which it purchased directly from the issuer. Of the $5.7 billion purchased directly from issuers, MoneyGram’s exposure was typically only one day and never more than seven days.  From this $5.7 billion investment MoneyGram earned OID of $1.2 million during 2007.  Relative to MoneyGram’s revenues generally, this amount is insubstantial.” 153 T. C. 9, at pp. 73-74.

Judge Albert G (“Scholar Al”) Lauber does this drill-down to show 5 Cir that Tax Court seriously considered the remand. MoneyGram’s seven (count ‘em, seven) lawyers, including but not limited to two of them with “III” after their names, have the long walk back. I’ve done that, and it ain’t fun.

The motto of the old Cuban League Cienfuego Elefantes “El paso de elefante es lento pero esplantante” (I need not of course translate) might well apply to the progress of Eaton Corporation and Subsidiaries, 280140-14, filed 12/3/19.

I’ve oftimes blogged Eaton, but Judge Kerrigan seems to be running out of patience. “This case has been pending for over five years and is not currently calendared for trial.” Order, at p. 1. Right now they’re holding short, pending decision (or opinion) on a Rule 161 reconsideration of Judge Kerrigan’s last decision, for which see my blogpost “Twelve Pages, Twenty-Two Lawyers,” filed 10/28/19.

Well, before the opinion above-referred-to, IRS wanted to amend their answer for the second time. “The second amendment to answer raises a new issue in this case that proposes an adjustment to income of $192,617,171, and an increase to the deficiency of $26,116,392 for taxable year 2010. These amounts were determined pursuant to section 951(a)(1) and section 1.951-1(h), Income Tax Regs.” Order, at p. 1.

IRS issued regs to Section 951 this past July, changing the whole story retroactive to May 14, 2010. This is the famous Global Intangible Low-Taxed Income fix. Eaton’s tax year ended 12/31/10. Except two years before the present proposed amendment, IRS and Eaton stiped to the pre-reg arrangement, which IRS now wants to torpedo.

Judge Kerrigan is definitely unhappy with these shenanigans.

“Rule 91(e) provides that ‘[a] stipulation shall be treated, to the extent of its terms, as a conclusive admission by the parties to the stipulation, unless otherwise permitted by the Court or agreed upon by those parties.’ The Rule further states: ‘The Court will not permit a party to a stipulation to qualify, change, or contradict a stipulation in whole or part, except that it may do so where justice requires.’ In Stanley v. Commissioner, T.C. Memo. 1991-20, we concluded that the parties should be bound by their stipulation even though petitioner contended the stipulation was inconsistent with a recent decision of the Fifth Circuit. In BankAmerica Corp. v. Commissioner, 109 T.C. 1, 12 (1997), the taxpayer was relieved from the effects of a stipulation for the narrow purpose of redetermining interest in a stipulated computation.

“The interest of justice does not require us to allow respondent to take a position inconsistent with the parties’ stipulations and responses to the Court and petitioner. The Court relied upon the stipulation in question when drafting its Opinion addressing the cross-motions for partial summary judgment. Respondent should have foreseen the proposed regulations, but instead pursued a different legal theory.” Order, at p. 4.

No second amendment for IRS.

Once again, a case for the old Taishoff slogan “Stipulate, Don’t Capitulate.”

My respect for that obliging jurist, Judge David Gustafson, has been heretofore set forth too many times to number, in this my blog. His famous dissents resulted in massive silt-stirs. His obliging nature leads him to offer to try your case in the slammer wherein you reside, draft your papers for you, and do all but bring coffee and Krispy Cremes to court on the morning of trial and feed the parking meter while you wait.

But today, Judge David Gustafson disses one of my all-time, all-star favorite moves. Here’s Arthur M. Bialer, Docket No. 6983-19W, filed 12/2/19.

Art’s bœuf with the Ogden Sunseteers is old, even though his petition is new (May 1, 2019, virtually brand-new). Art claims the OS crew treated him to a “…twelve-year campaign of delay, obfuscation, and destruction and/or suppression of evidence….” Order, at p. 2.

But Art is on for trial in January in The City L’Enfant Built. IRS wants a continuance (that’s an adjournment for us State courtiers) because the trial is set barely nine months after petition and only 28 (count ‘em, 28) days after issue was joined. Now my mentors, long ago in a galaxy far away, used to say that if you weren’t ready to try your case the day you filed your first pleading, you were a flop. Well, fast forward a millennium to the age of electronic discovery with 40 million (count ‘em, forty million) documents (see my blogpost “The Forty Million,” 4/29/15), and maybe not.

IRS wants to move for summary J. Obviously they’re going to play the Kasper gambit, Lacey variation: no proceedings, no collection, no award, no case. Art vociferously objects, saying he wants the trial when scheduled.

Judge Gustafson thinks both IRS and Art got it wrong.

As for Art, the issue is abuse of discretion by the OS, not trial de novo of whatever Art claims. And the review is limited to the administrative record, that is, what Art gave the OS, and what they did (or didn’t do) when they got it. And if what Art gave them either was useless, or if it did get to the operations branch (examination, collection, CID) and they did nothing, or did everything but collected nothing, game over. Tax Court can’t order operations branches to do anything.

As for IRS, “….neither party has filed a proposed administrative record; and it is evident that the parties have neither agreed on the contents of that record nor yet identified any particular disputes. We therefore cannot tell when this case will be ready for decision on the merits nor even when it might be ripe for an evidentiary hearing on the contents of the administrative record, if needed.” Order, at p. 2. And Art and IRS’ counsel are still fighting over a Rule 103 protective order.

But here’s the real hitch, and the cause of my concern.

“The Commissioner anticipates that, once the contents of the administrative record have been identified, he will be in a position to request a merits decision without trial on the basis of a motion, which he characterizes as a ‘motion for summary judgment’ (i.e., under Rule 121). When addressing a motion for ‘summary judgment’, however, we look for a dispute of material fact and then we deny the motion in the presence of such a dispute. It would seem that, if we followed the procedures of Rule 121 in this whistleblower case, then if there were a dispute of fact as to whether the WBO had abused its discretion, we would not resolve that dispute but instead would deny the motion. Such a denial would then be followed by a trial at which the dispute would be tried and decided–but, as we have observed, whistleblower cases are decided not after trial but on the basis of the administrative record. Under the principles set out in Kasper, it would seem that, once we have the administrative record before us, we decide ‘genuine disputes of material fact’ (contrary to the procedures of Rule 121) about whether or not the WBO abused its discretion. If this reasoning is correct, then a party seeking a decision in his favor in a whistleblower case should move not for ‘summary judgment’ but perhaps for entry of decision, more resembling a motion under Rule 122.” Order, at pp. 2-3.(Emphasis by the Court).

Judge, if you find a credible variance between blower and OS on an issue of material fact set forth in the administrative record proffered by IRS, but to which Art objects, even after remand, how do you “decide” without some kind of evidentiary hearing, just like a trial after summary J is denied? If there is no such variance, then summary J is exactly what should be given. Invoking Rule 122 instead of Rule 121 is, I most respectfully submit, a distinction without a difference.

But Judge Gustafson keeps the trial date, to cause the parties to focus on sorting out the administrative record and their differences.

It must have been big news in the trade press and the blogosphere when 9 Cir. overturned Altera Corporation & Subsidiaries, 16-70496, filed 7/24/18. Cutting to the cliché, the majority found Treasury didn’t violate the Administrative Procedures Act when it dropped the “comparable uncontrolled transaction” model, the touchstone, lodestone and philosopher’s stone of Section 482 transfer-pricing analysis, for stock-based compensation, via Reg. 1.482-7A(d)(2). The majority found plenty of legislative history that allowed IRS to use “commensurate with income” (cost of the employee stock option benefit must bear a relation to income from the employer). Dissenting, Judge O’Malley found Treasury tromped on Chenery by rationalizing its rulemaking after the fact with arguments it never used at the time. But read it for yourself.

I don’t cover CCAs and the Supremes; the trade press and the blogosphere have resources far beyond those of such as I,  “a general practitioner with very limited experience and mediocre qualifications,” as a far better writer than I put it.

The Tax Court story is spelled out in my blogpost “Sixteen Lawyers – Part Deux,” 7/27/15.

I mention this today, because Ch J Maurice B (“Mighty Mo’) Foley handed this to ex-Ch J L Paige (“Iron Fist”) Marvel to deal with the remand.

The title of this blogpost refers to the Comparable Uncontrolled Transaction (or “CUT”), as, at least when it comes to sharing the costs of stock-based employee compensation, CUT is out.

And United States Tax Court Was Still Closed

Hence again nothing from me.

US Tax Court is closed today, November 28, 2019, for the Thanksgiving Day holiday in the District of Columbia.

The Glasshouse Gang is heading for their unpardoned turkeys today, so there is neither opinion nor designated hitter to send us off to our Thanksgiving Day.

But what would a Glasshouse send-off be without a silt stir, to keep your hardworking blogger up to snuff?

For those coming late to this my blog, the silt-stirring metaphor for a case that requires re-examination of a bushelbasketful of cases past, present and to come, first appeared here in my blogpost “The Great Dissenter,” 12/28/11. And it was there that Judge Mark V Holmes first said it: “The silt we stir today will cloud the cases we plunge into tomorrow.”

All y’all will remember the massive silt-stir precipitated by Graev. What, you don’t? Then see my blogpost “Stir, Baby, Stir – That Silt,” 12/20/17, especially the aforesaid Judge Mark V Holmes evoking brigades of imaginary horribles as the retro effect of Graev went marching on.

This pre-holiday stirring features Rich Lacey II, whose joust with the Ogden Sunseteers, with its concomitant jump-ball with the Glasshouse Gang was the subject of my blogpost “The Whistleblower Office – Blown,” 11/25/19.

Well, today we have Judge Emin (“Eminent”) Toro suggesting IRS bukh about the effects (or otherwise) of Lacey in Robert Reese Hutchinson, 696-19W, filed 11/27/19. IRS is looking for summary J tossing Rob Reese. While Judge Toro doesn’t tell us the grounds alleged therefor, I wouldn’t be surprised if “no action, no money” was what the Dec in Support says, and not much else.

Even though he dissented in Lacey, Ch J Maurice B (“Mighty Mo”) Foley evinces more than a passing interest in the case, as he scrutinized IRS’ failure-to-state-a-claim move on Bryant Dwayne Crawford, Docket No. 18178-19W, filed 11/27/19. Ch J Mighty Mo likewise orders IRS to dish about Lacey.

But while Judge Toro lets Rob Reese reply to whatever IRS has to say about Lacey, Ch J Mighty Mo only wants to hear from IRS. BDwayne can only stand and wait.

I entitle this blogpost with the 1942 Bette Davis – Hans Conreid classic because of timing only. Debra L. Zalk Spitulnik & Charles Alan Spitulnik, Docket No. 21687-18L, filed 11/26/19, object to Appeals’ verification that all bases were touched in bouncing their requested IA.

The issue is whether Deb & Charles were tax-compliant for 2017. That obliging jurist Judge David Gustafson can’t oblige Deb & Charles, who claim that an overpayment credit from 2018 would wipe out their 2017 underpayment.

“(1) It was on October 3, 2018, that IRS Appeals issued the notice of determination that we review here, whereas the overpayment credit from 2018 to the 2017 liability was made effective April 15, 2019 (the date on which the 2018 return was due) and could not have been made before the 2018 return was filed. Section 6330(c)(1) required IRS Appeals to verify the current facts, not to wait six months to see what might happen in the next year. We cannot fault IRS Appeals’ verification for not foreseeing future events. (2) Even after the application of the reported 2018 overpayment, the Spitulniks’ 2017 liability had not been fully paid; rather, as late as July 31, 2019, the unpaid balance still exceeded $10,000. By any measure, Appeals correctly verified that the Spitulniks were not in compliance as to 2017.” Order, at p. 6.

Deb & Charles also claim the AO didn’t verify what they owed. But the tax liabilities were those shown on the returns Deb & Charles themselves filed. “…the Spitulniks complain that ‘the IRS has not independently verified that the amounts stated by Petitioners were correct or, if it has conducted such independent verification it has not provided Petitioners with that information.’ As we noted above, section 6330(c)(2)(B) provides that a taxpayer may, in some circumstances, ‘raise … challenges to the … amount of the underlying tax liability’; but the statute states that it is the taxpayer who must ‘raise’ this issue. IRS Appeals had no duty to disprove the liabilities that the Spitulniks themselves had reported on their returns, and the Spitulniks did not raise any liability challenge before Appeals or in their petition.” Order, at p. 6.

Btw, Charles is a lawyer.

But Judge David Gustafson goes the extra. “In the Spitulniks’ case they were not in compliance for their current tax obligations, and thus an in-person hearing was denied and the IA was denied. This does not mean the Spitulniks are precluded from achieving compliance with their current tax obligations and proposing another IA for 2008, 2009, and 2012 (or from proposing an IA for 2008, 2009, 2012, and 2017); however, the denial of the IA in this case was not an abuse of discretion.” Order, at pp. 7-8.

And Judge David Gustafson made it easy for this blogger by designating this order.

The Ogden Sunseteers have outdone themselves. It’s true the original Form 211 from Richard E. Lacey II, 153 T. C. 8, filed 11/25/19, was so scanty that the OS didn’t even send it to an operating division of IRS for a look-see, and Rich doesn’t dispute that.

“Mr. Lacey does not contend that his first submission was adequate but rather explains that he expected to supplement his information after the IRS began considering his claim.  In effect, he acknowledges that his first submission was, taken alone, properly rejected, so we need not evaluate any further the …rejection per se.”  153 T. C. 8, at p. 39.

And that Obliging Jurist Judge David Gustafson obliges me by beating up on a pet peeve of mine: “and/or.” IRS’ first bounce letter used that spurious locution.

“However, we note an imprecision in the letter, resulting from its use of ‘and/or’–i.e., it held that the claim ‘was speculative and/or did not provide specific or credible information’.  (Emphasis added.)  Admittedly, these two alternatives overlap, but the use of ‘and/or’ allows the writer to avoid specifying. Was there one reason the claim was rejected?  If so, which one?  Or were there two reasons?  If we look at the staff recommendations that preceded the decision, but see Chenery II, 332 U.S. at 196, they give no help, since one says ‘and/or’ and the other says ‘or’.  It is unclear how we should review the WBO’s multiple-choice letter… but we are relieved of that task by subsequent events–Mr. Lacey’s concession that his first submission was properly rejected and the second submission and the operative rejection….” 153 T. C. 8, at pp. 39-40.

But then Rich hired a lawyer, who asked for a clarification. He got a form letter that said they’d considered the “additional information” (except there wasn’t any), and bounced it. Whereupon said lawyer (who doesn’t appear for Rich in this litigation) sends in a 21 (count ‘em, 21) page “brief,” detailing the delictions of BP, where Rich was formerly employed, in the Deepwater Horizon oil-spill and cover-up.

The Ogden Sunseteers bounced that as well. True, it contained public info, but the 2018 amendment to the IRM says “Claims submitted with publicly available information must still be considered, regardless of the whistleblower’s firsthand knowledge of the situation.” IRM pt. 25.2.1.3.3(3) (Jan. 11, 2018). I said it a long time ago: the info may be public, but if the blower doesn’t connect the dots, then IRS will never be the wiser.

However, pore l’il ole Tax Court can’t review IRS’ determination to examine or pursue, nor order IRS to do anything. All Tax Court can do is review the OS’ determination (or denial, or rejection: they use these words interchangeably, to Judge Gustafson’s dismay) that the submission lacks merit to such an extent that they won’t send it to an operating branch to evaluate.

“Mr. Lacey does not challenge a decision by IRS examination personnel declining to audit BP’s returns on the basis of his information (since no such decision was ever made), nor does he challenge a decision by IRS collection personnel declining to attempt to collect from BP tax liability arising from his information (since no such decision was ever made).  He does not ask us to review any act by those examination and collection personnel or to give any direction to those examination and collection personnel.  Rather, Mr. Lacey challenges action by the WBO–i.e., its declining to refer his claim for substantive consideration but instead ‘rejecting’ it on the grounds that it failed to meet minimum standards for consideration.” 153 T. C. 8, at p. 33.

And Tax Court has jurisdiction to review that rejection for abuse of discretion. Well, no proceeds were collected, right? But if the Ogden Sunseteers bounced every application, without sending it to an operating branch, on the grounds that no proceeds were collected (since those charged with collecting never saw the info), then they would be immune from judicial review.

“Hypothetically, if the WBO were to reject reflexively by return mail all whistleblower claims–a clear abuse of its discretion–it could thereafter defend every case with the irrefutable contentions that no administrative or judicial action had been commenced or continued and that no proceeds had been collected on the basis of the whistleblower’s information.  Of necessity, those contentions would always be factually true, but such reflexive rejection by the WBO would be arbitrary–and, if arbitrary, then an abuse of discretion that we must reverse.” 153 T. C. 8, at p.36.

But the administrative record never got to Judge David Gustafson, so he doesn’t know what memos the Ogden Sunseteers wrote, or anything else. Their letters are as scanty as Rich’s original Form 211.

Rich wants remand, but it’s too soon for that. IRS wants summary J, but that’s a non-starter. Let’s see the administrative record, and let the parties tell us how to proceed.

Judges Gale, Lauber, Ashford, Urda, Copeland, and Jones agree. Judge Paris sits this one out.

Ex-Ch J Michael B (“Iron Mike”) Thornton concurs: “Whether the Whistleblower Office actually abused its discretion in rejecting the claim is a question that remains open for another day, once the complete administrative record is before the Court.  On that understanding, I concur with the opinion of the Court.” 153 T. C. 8, at p. 46; Judges Gale, Marvel, Morrison, Kerrigan, Lauber, Urda, and Copeland are down with that.

Judge Patrick J. (“Scholar Pat”) Urda concurs, lecturing Judge Buch and the dissenters that Tax Court has jurisdiction over more than the mere amount of an award. “The dissent notes that a whistleblower cannot qualify for an award unless the IRS institutes an administrative or judicial action and collects proceeds.  The dissent then concludes that we have no choice but to grant summary judgment to respondent here because there was no action and there were no proceeds…. With due respect, the dissent is incorrectly conflating the requirements for a whistleblower to obtain an award under section 7623(b)(1) with our review under subsection (b)(4).” 153 T. C. 8, at pp. 47-48. Judges Gale, Gustafson, Lauber, Ashford, and Copeland agree with all of Scholar Pat’s dissertation; Judge Jones only likes Part I.

But Judge Buch isn’t buying. And Ch J Maurice B (Mighty Mo”) Foley, Judges Nega, and Pugh agree. No proceeds, no award, nothing to review.

Taishoff says the dissenters are wrong. Yes, if the Ogden Sunseteers find the whole submission is so vague or off-the-wall as to be a waste of time, they can and should bounce it out of hand. But if there’s any reasonable chance there’s something there, even if in plain sight, they should buck it on to an operating division for a look-see. If operating (examination, CID, collection, whichever) says “no go,“ game over. But the Ogden Sunseteers have no freewheeling mandate to decide there’s nothing for an operating branch to look at. It’s the operating branch personnel who do the examining, investigating, collecting, and it’s they who decide whether or not to try to collect. In this case the Ogden Sunseteers may have short-circuited the process. So let’s have a show-and-tell with the administrative record.

Now Rich may or may not have anything. But there maybe might could be just enough for Examination or some operating branch to take a quick peek.

But Still Profit-Motivated

Lowell G. Den Besten, 2019 T. C. Memo. 154, filed 11/25/19, leads Judge Paris through the nine (count ‘em, nine) factors of Reg. 1.183-2(b), the “goofy regulation” for his cutting horse activity, and beats IRS.

Word to a colleague: Mr. Reilly, here’s another one for ya.

Lowell was in the seed business, but loved cutting horses from boyhood’s earliest hour. He sold the seed business on the installment plan to his son, but the son defaulted on the notes. While son was letting the business go to seed (sorry, guys), Lowell was winning championships at cutting horse events, breeding, advertising,  hiring help, giving all his records to trusty CPA of thirty years’ standing, downsizing the horse stuff while trying to rebuild seed business after son nearly cratered it, and showing how horses could increase in value by winning contests or breeding or both. Judge Paris has it all: Lowell gets six factors, IRS gets two, and one is neutral.

Lowell rescued the seed business and used the cutting horse losses to offset his seedy profits, but he didn’t have huge income to offset. Lowell can’t prove his NOL either, but his agricultural records pass muster for his deductible expenses.

“In the agricultural business it is not unusual to see no maintenance of records other than canceled checks and deposit slips.  See Edge v. Commissioner, T.C. Memo. 1973-274, 1973 Tax Ct. Memo LEXIS 13, at *21 (declining to weigh against a farmer for his minimal recordkeeping system when it was no less stringent than what other farmers in the area used and worked for his particular operation).  The records petitioner maintained were consistent with his business profit objective and enabled him to make educated business decisions about his cutting horse activity.  This factor favors petitioner’s having a profit objective.” 2019 T. C. Memo. 154, at p. 23.

As usual, it’s all about the facts, but Lowell did a great job, pro se.