NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT 

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No. 15-2196

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RAYMOND PRICE, III;

LYNN M. PRICE,

 Appellants

v.

COMMISSIONER OF INTERNAL REVENUE

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On Appeal from the United States Tax Court

Nos. 1:13-4301; 1:13-8470

 

Submitted Pursuant to Third Circuit L.A.R. 34.1(a)

March 3, 2016

Before: McKEE, Chief Judge, SMITH, and HARDIMAN, Circuit Judges

(Filed: March 7, 2016) 

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 OPINION

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SMITH, Circuit Judge.

In a comprehensive memorandum opinion dated December 16, 2014, the 

 

 This disposition is not an opinion of the full court and pursuant to I.O.P. 5.7 does 

not constitute binding precedent.
2

United States Tax Court upheld, as explained therein, the tax deficiencies 

determined by the Commissioner of the Internal Revenue Service for taxable years 

2009 through 2011 against appellants. This timely appeal followed.1 Appellants

contend that the Tax Court erred in finding (1) that their horse farm and 

automobile dealership undertakings were not a single activity, and (2) that the 

horse farm undertaking was not conducted for profit. We will affirm for the 

reasons stated below and for the reasons articulated by the Tax Court in its 

December 16, 2014, memorandum opinion.

“While we conduct plenary review of the Tax Court’s legal conclusions, we 

review its factual findings, including its ultimate finding as to the economic 

substance of a transaction, for clear error.” Crispin v. Comm’r, 708 F.3d 507, 514 

(3d Cir. 2013) (quoting ACM P’ship v. Comm’r, 157 F.3d 231, 245 (3d Cir. 1998)). 

“The Commissioner’s deficiency determination is entitled to a presumption of 

correctness and . . . the burden of production as well as the ultimate burden of 

persuasion is placed on the taxpayer.” Id. (quoting Anastasato v. Comm’r, 794 

F.2d 884, 887 (3d Cir. 1986)). The taxpayer must “prov[e] entitlement to a 

claimed deduction by a preponderance of the evidence.” Blodgett v. Comm’r, 394 

F.3d 1030, 1035 (8th Cir. 2005); Tax Court Rule 142(a). This burden may shift 

 

1 The Tax Court had jurisdiction pursuant to I.R.C. §§ 6213(a), 6214, and 7442. We have 

jurisdiction over final orders of the Tax Court pursuant to I.R.C. § 7482(a). 
3

back to the Commissioner if the taxpayer introduces credible evidence with respect 

to any relevant factual issue and meets other conditions, including maintaining 

required records. I.R.C. § 7491(a); Blodgett, 394 F.3d at 1035. 

Treasury Regulation 1.183-1(d)(1) states that “[g]enerally, the 

Commissioner will accept the characterization by the taxpayer of several 

undertakings either as a single activity or as separate activities.” Such deference to 

the taxpayer will not be given, however, “when it appears that his characterization 

is artificial and cannot be reasonably supported under the facts and circumstances 

of the case.” Id. The regulation provides several factors to be considered in 

determining whether two undertakings are part of the same activity. As a general 

rule, “all the facts and circumstances of the case must be taken into account.” Id. 

However, “the most significant facts and circumstances in making this

determination are the degree of organizational and economic interrelationship of 

various undertakings, the business purpose which is (or might be) served by 

carrying on the various undertakings separately or together in a trade or business or 

in an investment setting, and the similarity of various undertakings.” Id. 

In addition to the factors explicitly listed in Treasury Regulation 1.183-

1(d)(1), courts consider other factors in determining whether the taxpayer’s 

characterization is reasonable. These factors are: 
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(a) [w]hether the undertakings are conducted at the same place; 

(b) whether the undertakings were part of the taxpayer’s efforts 

to find sources of revenue from his or her land; (c) whether the 

undertakings were formed as separate businesses; (d) whether 

one undertaking benefited from the other; (e) whether the 

taxpayer used one undertaking to advertise the other; (f) the 

degree to which the undertakings shared management; (g) the 

degree to which one caretaker oversaw the assets of both 

undertakings; (h) whether the taxpayer used the same 

accountant for the undertakings; and (i) the degree to which the 

undertakings shared books or records.

Mitchell v. Comm’r, 92 T.C.M. (CCH) 17, *4 (2006). The Tax Court thoroughly 

analyzed both the regulation’s enumerated factors and the Mitchell factors, and its 

determination that appellants’ horse farm and automobile dealership undertakings 

were not part of the same activity is not clearly erroneous. 

Appellants have also failed to show that the horse farm undertaking was 

conducted with a profit motive. Treasury Regulation 1.183-2(b) enumerates nine 

non-exclusive factors to be considered in determining whether an activity is 

conducted for profit: (1) the manner in which the taxpayer carries on the activity; 

(2) the expertise of the taxpayer or his advisors; (3) the time and effort expended 

by the taxpayer in carrying on the activity; (4) the expectation that assets used in 

the activity may appreciate in value; (5) the success of the taxpayer in carrying on 

other similar or dissimilar activities; (6) the taxpayer’s history of income or losses 

with respect to the activity; (7) the amount of occasional profits, if any, which were 

earned; (8) the financial status of the taxpayer; and (9) elements of personal 
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pleasure or recreation. Again, “[n]o one factor is determinative in making this 

determination,” and all facts and circumstances are to be taken into account. 26 

C.F.R. § 1.183-2(b). Again, the Tax Court thoroughly analyzed these factors and 

did not commit clear error in determining that the horse farm undertaking was not 

conducted with a profit motive. 

For the reasons stated herein, and for the reasons stated in the Tax Court’s 

December 16, 2014, memorandum opinion, we will affirm the order of the Tax 

Court.