states tax court in many ways it's not a complicated case the facts are relatively short i think it's probably ten pages of the opinion a devoted to the facts none of the facts are disputed by the  taxpayer the amount of the loss is not in dispute this was not a tax shelter the taxpayers actually lost two million dollars draining their savings and putting them in debt the general legal principles tax court decision in our view is very simple in determining that the tax payers did not engage in regular substantial and continuous activity the tax court disregarded all of the activity that the tax payers spent in the six years before the completion of construction of the building much of that activity consistent with  d they they talked about rats they tried to get at that they look at a person who was going to possibly rant who did that didn't pan out but over the period of time in question there was there was  at least equal activity on that on the sale front again as i said it is it's certainly not uncommon in the real estate area for a taxpayer for developers of property to have alternative ways of monetizing their development are you arguing that somehow they were in the trade or business of renting properties generally you know not as well although as i'd bet there's just there's clearly some thinking that one can't be an attractive business until somebody has already been in a trade or because i like to remind the sport that engrossing are the supreme court case that held a professional gambler was in a trade a business he  in a trade a business the st day he started gambling he lost his job in february i think i forgot in one thousand nine hundred and four he once he lost his job he started going to the racetrack every day and his part of the business you can't run property of the sun inhabitable argument is that they don't have to actually rent i mean if we took it in a different a hypothetical would be somebody build purchases an apartment building and spend several years renovating the apartments to put it on the market it's clear in that case that the person is engaged in the trade or business of good even if market conditions change and the apartment building never ends up having a lease and it's certainly not uncommon in developing an apartment building you may decide i'm going to sell the apartment as condominiums i'm going to rent it is rental i'm going to solve for somebody else you know if you do you determine how you're going to exit the investment business when you depending on market conditions at that time i'm not saying you can't engage in investment activity in real estate i could go to one of the condominium developments in the in this area buy a condominium apartment thinking that it's under priced and i'm thinking that if i said if i hold the apartment for a few years i could sell it at a profit that isn't bad a business but is that you know in this case it doesn't seem to me if we're looking for if my analogy is a purchase an apartment building and spent six years renovating individual apartments while at the same time investigating the market and we don't seem to have the same sort of regular substantial continuous this renovation again they bought just they bought this property for approximately one million dollars they spent four million dollars renovating it over a six year period in addition to three million dollars of interest this was property again as i'm not i'm not disagreeing with that statement but engaging in substantial again the regular at the statutory provisions don't talk about property that would qualify if if if they went into this transaction intending to sell it and spend six years renovating the apartment building with the intention of selling it that is a trade or business it's not it happens not to be the trade of business they thought they were entering into but it would have been a trade of business people again people build properties for sale all the time there's a whole home building a business that is a business that it doesn't matter whether they sell it or or rent it they're also engaged in a business we've never said in our case to address the the weather it doesn't seem to be that the parties are in dispute on this point but whether you have to actually enter the rental business rent we've never said that in again the real reason that comes up a lot in the case law is that virtually all of the caseload that held against tax payers involve taxpayers that did no activity whatsoever other than trying to find tenants in a building they bought building they inherited a building they were gifted there were no other activities other then activities attempting to rent a property if they didn't have enough activity in renting the property they had nothing else to rely on because that was how they were going to bring in the money the essence of a bill and it well and good and necessary to spend a lot of time and money as we don't dispute that breather yet you would agree though that if a person was bought a couple of houses renovated them and sold them in the past and then was doing that here on these facts was aiming toward something  which is a one and that would fit really under more real property as inventory held for sale in an owner course of business the customers but here we are in a two a rental trade a business well  in that then the tax court opinion says that they didn't intend to live in the property so weren't they either intending to rent it or to sell it well the testimony was that they had always intended to rent it right but then have done more much more in our view renzo related activities such as marketing such as taking more steps toward securing a lease with the pen and if things weren't working sell and ended up being treated as a catalyst that would be treated as a capital asset and i may have misread that that opinion to some extent because plainly if you are trying to rent that you can't and then you have to sell because one of your creditors is after you and this is going to make it's going to be impossible to keep the property and you have to saw that a loss  why is that treated as a capital losses well because well i think it be useful to focus on the specific facts and the timeline of the case st the taxpayers bought this property in two thousand in january of two thousand city of newport had it was safe and habitable for a year at least several months before they actually rented it out so by february of eight they got the tenant and until he pulled out three months later in may of eight they never secured the lease now the property was not i guess ready by the standards of mrs keefe and agents perhaps but maybe they could have secured a tenant who was willing to sign a lease provided that the the property was the property was ready by the time it was going to be rented they never got a security deposit and with the testimony of the agent the people do sometimes put down a deposit and there is a lot financially riding on this transaction is the idea that even if they never intended to live in the property and they which means that they must have intended either to sell or rent at some  point correct me if i'm missing something there you also have to show it doesn't matter if you can show it was intentional and you have to show enough activity either directed towards sale or activity either direction toward factual finding that they did not intend to live in the building at the end is that at any point they never intended to live at the building is that how you would read the opinion or you would read it more near zero that's the factual finding of the tax court and we don't dispute that why can't why couldn't couldn't you have a piece of property like this and keep keep your options open as to whether i'm going to sell it to make money or whether i'm going to rent it to make money well if you're keeping your options open and you want to say that you're in a trade or business you're in the trade of business of making money of property that you buy in a reasonable what you think is a very favorable price and you're not what if you were going to argue a failed theory then you ok it's possible to have a failed business if you have just one but it's much harder right and here we would argue that there are no facts very hawtrey facts showing that they're in a sale business if you look up one thousand two hundred and twenty one a one cases where people are you know dealers in real property they have a history they have an office they have billboards on the road here we don't have that yet maybe it's the st one well if we had a factual record maybe this would have been viable but i don't think we do here and really with the same property or properties you usually have to pick one right there's a case called little that we side of the th circuit where carson was obviously a dealer in property he sold three hundred properties in five years and a question about that but had read this case differently as as if the rental the fact that they were trying to rent this case rent had to be that that had to be the course in order to have it be it in a trade or business they're not going to live in it they want to make money that's one dollar way or another they want to make money and this this was a pivot is over what six years pretty regular continuous substantial renovation activity we  the idea is you can't there was no argument below that they intended to sell the product there was an argument that they engaged in continuous substantial regular activity to rent and the factual determination just was well you didn't we didn't intend to live in it but you didn't engage in enough activity to say that there was a continuous substantial activity directed at rental that's that that's what the centrally what the just is there so is there an inconsistency with the tax court saying they didn't intend to live in it and then saying at the same time that they also didn't engag continue a substantial regular activity to rent no i don't think so because so you don't intend to live in it you don't have regular continue substantial rental related activity i think the point the is that anyone who spends any time anything right would think it would be nice if i could make money from it but it would be nice to make money is not the same as i am in it to make this money and i'm going to do everything that i can and i think the tax court finding in opposition is that there are things that the taxpayers could have done especially after the hold out in the beginning of the summer  and if at that point the argument as well that we were so desperate we couldn't carry this property anymore well the testimony is not quite clear on the timing of when things got very desperate but i think  trying to sell it as well i mean we can't say that holding property like this if you don't intend to live in it necessarily is is is excluded from being considered in the trade or business book because it might be sold as opposed to that you still would have to have enough feel related activity i think in this case most of activity went into the renovation part of it and there was a well to the what into the renovation part of it as to the sale yes there is evidence that mrs keefe went to the three auctioneers and she and she finally did but there's no history there's no history of profit there has to be a right is so you could write a piece of land and say i enjoy having right and you could do things to it right if you don't have regular continuous business activity is not a a trade or business and the actual finding here was just there wasn't enough activity for it and you can lose on both count was a lot of activity there was a lot of renovation there's a lot of renovation activity but what is the profit send money into something that's always going to be going to be well i'm sure they didn't go in to go into this project thinking that was going to be a loser but what their activities show is that they're thinking well it will be great to fix this and it would be nice if we could make money out of this which is you know any time you buy an appreciable property it was a hobby of sorts that would be putting a little starkly i think that the way we would put it is it doesn't add up to a trade of business in either sale or rental business just a couple of short points as they went into this thinking they were going to rent that that was their plan sorry they were planning to rented that was that was how they envisioned it they miscalculated a lot of things about the project they miscalculated the cost they miscalculated the amount of time it took a parent you know you know businesses fail for all kinds of reasons a bit idea bad execution bad timing they probably had all three of those in this case particularly bad timing had been completed and in two thousand and eight your adversary referred to the period of time that elapsed before they did anything well again this was this this well i i i i i have to some extent i have to speculate here i wasn't representing him at the time i wasn't really familiar with the time this was has sturrock property was what this was a property that had to be restored in accordance with the historic nature of the property the requirements of the rhode island historical society you don't just start constructing there you need detailed architectural plans you need to get the plans approved by the historical society it's not something that you can begin construction on immediately but it is the notion that if your business fails before it's before you start generating revenue saying that the renovation was not part of the rental business i don't know how you rent on the rent the house that's uninhabitable you know what to make in order to rent the building you had to finish the construction your point is that whatever they were doing they should be penalize because they were in that again this loss provisions are lost provisions usually come up in connection with businesses that are unsuccessful their sometimes done successfully they got the right contractor and he was on time and they were able to get their applications in and they were able to do everything that was necessary in order to get the property ready and they got the property ready in three years instead of six that they would have either sold with and then then then then they would have been happy the iris would win and happy they would have made money i don't know what the tax consequences would  but but in any event you're saying that basically it doesn't the fact that they were engaged in trying to make money and were unsuccessful should not be that because of there again we've said before the law distinguishes between investment activities and business activities and one can make a bad investment one can buy property thinking it's going to improve sheeting value and add  but they did they didn't simply buy property here they spend six years four million dollars of construction costs three million dollars of interest rehabilitating renovating a property as you said to make money they were unsuccessful but they were engaged in regular can substantially continuous activities thank you