Petitioners V. Richards Case Digest Summary
Rick Richards, et ux. v. Commissioner
Facts:
The petitioners, Mr. Richards and Mrs. Richards,
Issues:
1. Whether petitioner (both Mr. Richards and Mrs. Richards) conducted their writing or acting activities with the objective of making a profit within the meaning of §186?
2. Whether petitioners have substantiated the ordinary and necessary business expense of these activities?
3. Whether petitioners are entitled to carry forward a net operating loss from a prior tax year
4. Whether petitioners are liable for the accuracy-related penalty under §6662(a)
Holdings:
1. Yes, during the year at issue, Mr. Richards was engaged in his writing activity with the requisite profit objective. Similarly, Mrs. Richards was also engaged in the actress-model activity with the requisite profit objective.
2. Taxpayers could deduct expense they substantiated with receipts and showed were related to their activities. But taxpayers were denied deductions for expenses they didn’t substantiate or show were related to …show more content…
activities.
3. Taxpayers were denied loss carry forward where return for loss year did not prove carry forward entitlement.
4. Yes, accuracy-related negligence penalty was upheld where taxpayers improperly maintained records and deducted personal expense
Rational:
- To be engaged in a tread or business within the meaning of §162 “ the taxpayer must be involved in the activity with continuity and regularity and the taxpayers primary purpose for engaging in the activity must be for income or profit.
- Mr. Richards managed some aspects of this activity in a businesslike fashion and devotes much of his time and energy to carrying on this activity.
- Mr. Richards does not have income from other sources, and petitioners did not derive great tax benefits from the claimed losses.
- The Court further analyzed each portion of deduction taken by petitioner as expenses that are ordinary and necessary. In conclusion, the court allowed the petitioner to deduct supplies, registration, part of copy cost, part of shipping cost. Giving the reason that all these expense are ordinary and necessary business expense for a writer, and the petitioner provided adequate recipes and records for the expense generated.
- The Court did not allow deduction of the following: Research book, Magazines and Trade publications; movies, plays and concerts, travel expense; TV sets, Videotapes; audiotapes; fax and telephone cost; vehicle expense; due to the fact that petitioner did not maintain any records detailing the related expense and some of them are not necessary business expense.
- Mrs. Richards managed some aspects of this activity in a businesslike fashion he had an agent and kept a journal of her auditions and callbacks. Moreover, Mrs. Richards has a long history in the acting profession.
- Expense for the Academy player directory, agent fees, photo session, and duplicate photos are all ordinary and necessary expense of an actress-model activity, so petitioners are entitled to deductions.
-
Prieto v. Commissioner
Facts:
The petitioner, Dr.
Prieto, works for a medical practice while making decent income within years. His wife, Mrs. Prieto, spends a considerable amount of time working in the same medical practice. Under the strong interest of riding horses for both the petitioners and their children, they engaged in a horse activity that included purchasing, training, showing and selling horses. Petitioner created logo for the business but does not have a written business plan; neither makes a budget for the horse activity. In later years, petitioners entered their horses in at least 15 different shows and become recognized. However, the horse activity sustained losses, and the petitioners deducted these losses from their income each year. They attempted to cut losses due to cash shortage but did not even inform the “bookkeeper” how much money they were losing. During 2000, petitioners closed up the horse activity, mainly because their children are old enough and move
away.
Issue:
Whether petitioners’ house activity was an activity engaged in for profit.
Holding:
The evidence submitted to the Court establishes that petitioners’ primary, predominant, or principal motive for engaging in the horse activity was not for profit.
Rationales:
- While petitioners did keep records, they did not have bills of sale for all of their horses.
Facts:
The petitioners, Mr. Richards and Mrs. Richards,
Issues:
1. Whether petitioner (both Mr. Richards and Mrs. Richards) conducted their writing or acting activities with the objective of making a profit within the meaning of §186?
2. Whether petitioners have substantiated the ordinary and necessary business expense of these activities?
3. Whether petitioners are entitled to carry forward a net operating loss from a prior tax year
4. Whether petitioners are liable for the accuracy-related penalty under §6662(a)
Holdings:
1. Yes, during the year at issue, Mr. Richards was engaged in his writing activity with the requisite profit objective. Similarly, Mrs. Richards was also engaged in the actress-model activity with the requisite profit objective.
2. Taxpayers could deduct expense they substantiated with receipts and showed were related to their activities. But taxpayers were denied deductions for expenses they didn’t substantiate or show were related to …show more content…
activities.
3. Taxpayers were denied loss carry forward where return for loss year did not prove carry forward entitlement.
4. Yes, accuracy-related negligence penalty was upheld where taxpayers improperly maintained records and deducted personal expense
Rational:
- To be engaged in a tread or business within the meaning of §162 “ the taxpayer must be involved in the activity with continuity and regularity and the taxpayers primary purpose for engaging in the activity must be for income or profit.
- Mr. Richards managed some aspects of this activity in a businesslike fashion and devotes much of his time and energy to carrying on this activity.
- Mr. Richards does not have income from other sources, and petitioners did not derive great tax benefits from the claimed losses.
- The Court further analyzed each portion of deduction taken by petitioner as expenses that are ordinary and necessary. In conclusion, the court allowed the petitioner to deduct supplies, registration, part of copy cost, part of shipping cost. Giving the reason that all these expense are ordinary and necessary business expense for a writer, and the petitioner provided adequate recipes and records for the expense generated.
- The Court did not allow deduction of the following: Research book, Magazines and Trade publications; movies, plays and concerts, travel expense; TV sets, Videotapes; audiotapes; fax and telephone cost; vehicle expense; due to the fact that petitioner did not maintain any records detailing the related expense and some of them are not necessary business expense.
- Mrs. Richards managed some aspects of this activity in a businesslike fashion he had an agent and kept a journal of her auditions and callbacks. Moreover, Mrs. Richards has a long history in the acting profession.
- Expense for the Academy player directory, agent fees, photo session, and duplicate photos are all ordinary and necessary expense of an actress-model activity, so petitioners are entitled to deductions.
-
Prieto v. Commissioner
Facts:
The petitioner, Dr.
Prieto, works for a medical practice while making decent income within years. His wife, Mrs. Prieto, spends a considerable amount of time working in the same medical practice. Under the strong interest of riding horses for both the petitioners and their children, they engaged in a horse activity that included purchasing, training, showing and selling horses. Petitioner created logo for the business but does not have a written business plan; neither makes a budget for the horse activity. In later years, petitioners entered their horses in at least 15 different shows and become recognized. However, the horse activity sustained losses, and the petitioners deducted these losses from their income each year. They attempted to cut losses due to cash shortage but did not even inform the “bookkeeper” how much money they were losing. During 2000, petitioners closed up the horse activity, mainly because their children are old enough and move
away.
Issue:
Whether petitioners’ house activity was an activity engaged in for profit.
Holding:
The evidence submitted to the Court establishes that petitioners’ primary, predominant, or principal motive for engaging in the horse activity was not for profit.
Rationales:
- While petitioners did keep records, they did not have bills of sale for all of their horses.