Justia Animal / Dog Law Opinion Summaries

During the tax years at issue, 2010–2013, the Taxpayers owned a New Jersey horse farm. Their Company employed several employees, none of whom had a budget. The Company paid the Taxpayers' personal expenses and lost more than $3.5 million during the years at issue and more than $11.4 million between 1998-2013. The Taxpayers contributed capital and made loans to the Company. In 2016, the Company sold a horse for nearly $1.2 million, enabling it to report a modest overall profit.In 2016, the IRS sent notices of income tax deficiencies. The Tax Court sustained the deficiency determinations, holding that the Taxpayers could not deduct Company losses because their horse breeding activity was not engaged in for profit under Internal Revenue Code section 183 and that the Taxpayers failed to substantiate net operating loss carryforwards that allegedly arose from Company activity. The Third Circuit affirmed. The Tax Court did not clearly err when it found that adverse market conditions did not explain the Company’s sustained unprofitability and correctly considered the Taxpayers’ substantial income from other sources. The profit generated from the 2016 horse sale was tempered by the fact that it occurred after the tax years at issue and after the notices of deficiency. The expertise of the Taxpayers and their advisors was the only factor that favored the Taxpayers. View "Skolnick v. Commissioner of Internal Revenue" on Justia Law

In 2014 the Tax Court held that Roberts had deducted expenses from his horse‐racing enterprise on his federal income tax returns for 2005 and 2006 erroneously because the enterprise was a hobby rather than a business, 26 U.S.C. 183(a), (b)(2)..The court assessed tax deficiencies of $89,710 for 2005 and $116,475 for 2006, but ruled that his business had ceased to be a hobby, and had become a bona fide business, in 2007. The IRS has not challenged Roberts’ deductions since then and Roberts continues to operate his horse‐racing business. The Seventh Circuit reversed the Tax Court’s judgment upholding the deficiencies assessed for 2005 and 2006. A business is not transformed into a hobby “merely because the owner finds it pleasurable; suffering has never been made a prerequisite to deductibility.” The court noted instances demonstrating Roberts’ intent to make a profit. View "Roberts v. Comm'r of Internal Revenue" on Justia Law

In 2014 the Tax Court held that Roberts had deducted expenses from his horse‐racing enterprise on his federal income tax returns for 2005 and 2006 erroneously because the enterprise was a hobby rather than a business, 26 U.S.C. 183(a), (b)(2)..The court assessed tax deficiencies of $89,710 for 2005 and $116,475 for 2006, but ruled that his business had ceased to be a hobby, and had become a bona fide business, in 2007. The IRS has not challenged Roberts’ deductions since then and Roberts continues to operate his horse‐racing business. The Seventh Circuit reversed the Tax Court’s judgment upholding the deficiencies assessed for 2005 and 2006. A business is not transformed into a hobby “merely because the owner finds it pleasurable; suffering has never been made a prerequisite to deductibility.” The court noted instances demonstrating Roberts’ intent to make a profit. View "Roberts v. Comm'r of Internal Revenue" on Justia Law

Wilma Stuller and her late husband bred Tennessee Walking Horses. They incorporated the operation and claimed its substantial losses as deductions on their tax returns. The IRS determined that the horse-breeding was not an activity engaged in for profit, assessed taxes and penalties, and penalized them for failing to timely file their 2003 return. After paying, the Stullers and LSA, sued the government for a refund. The district court excluded the Stullers’ proposed expert. It determined that his expertise did not extend to the financial or business aspects of horse-breeding and he lacked a reliable methodology to opine on the Stullers’ intent. The court found that the corporation was not run as a for-profit business under 26 U.S.C. 183, and determined that the Stullers lacked reasonable cause for failing to timely file their 2003 tax return. The court also denied a request to amend the judgment and effectively refund taxes paid by the Stullers on rental income received from the corporation. The Seventh Circuit affirmed. The district court followed Daubert in excluding the expert and applied each factor of the regulations to the facts. Only the expectation of asset appreciation weighed in the Stullers’ favor; almost every other consideration pointed to horse-breeding as a hobby or personal pleasure. View "Estate of Stuller v. United States" on Justia Law