T.C. Summary Opinion 2009-160

UNITED STATES TAX COURT

FRANCIS J. AND ANDREA P. BOGUS, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 14809-07S. Filed October 19, 2009.

Francis J. Bogus, pro se.

Charles Maurer, Jr., for respondent.

GOLDBERG, Special Trial Judge: This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed. Pursuant to section

7463(b), the decision to be entered is not reviewable by any

other court, and this opinion shall not be treated as precedent

for any other case. Unless otherwise indicated, subsequent

section references are to the Internal Revenue Code in effect for
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the years in issue, and all Rule references are to the Tax Court

Rules of Practice and Procedure. 

On their joint Federal income tax returns for 2003 and 2004

petitioners reported on Schedule C, Profit or Loss From Business,

gross receipts of $44,383 and $31,027, respectively, and total

expenses of $121,981 and $116,319, respectively, resulting in

losses for 2003 and 2004 of $77,598 and $85,292, respectively. 

In the notice of deficiency respondent disallowed losses in

excess of gross receipts as passive losses in both years. 

Respondent determined a deficiency in petitioners’ Federal income

taxes of $14,342 for 2003 and $16,577 for 2004. The sole issue

for decision is whether the passive loss rules of section 469

preclude petitioners from deducting losses incurred from their

dog racing activity.

 Background

Some of the facts have been stipulated and are so found. 

The stipulation of facts and the attached exhibits are

incorporated herein by this reference. Petitioners resided in

Massachusetts when the petition was filed. 

During 2003 and 2004 Francis J. Bogus (petitioner) was

employed by Verizon as a network technician and typically worked

4 or 5 days per week from 7:30 a.m. to 4:30 p.m. Petitioner

worked approximately 40 years for Verizon and was retired at the

time of trial. 
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 Petitioner developed an interest in greyhounds approximately

25 years ago. Petitioner was introduced to greyhounds by a

friend who also lived in Massachusetts. His friend imported

greyhounds from Ireland for resale. Petitioner initially

purchased two trained greyhounds from his friend. Petitioner

then bred these dogs and contracted with professionals to race

them at a dog track in Rhode Island. By 2003 petitioner owned

approximately 164 greyhounds, worth an estimated $300,000, all

registered with the National Greyhound Association. Petitioner

owned greyhound puppies in Oklahoma and Florida and full-grown

greyhounds at approximately 10 different racetracks in multiple

States. 

From birth to 12 months of age the greyhound puppies were in

the care of farmers who raised them. Petitioner personally

visited a farm in Florida to check on his puppies on only one

occasion and then only because he was taking his children to

nearby Disney World. Petitioner maintained contact with the

farmers by telephone. 

From 12 to 16 months of age the greyhounds were in the care

of trainers who boarded them and trained them to race. The

trainers would call petitioner to report how the dogs were

progressing. Petitioner would then determine whether to race a

dog and where the dog should be raced. 
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From 16 months to 5 years of age petitioner’s greyhounds

raced at one or more tracks. Petitioner contracted with

individuals at a number of dog tracks to race his dogs. During

the years that a dog was being raced the dog would be cared for

by the individual who was racing the dog. Each greyhound would

be assigned a grade, depending on how well it raced. The best

grade was AA. When one of petitioner’s dogs won a race,

petitioner would receive money, the amount of which was

determined by the grade of the dog and the track where the dog

raced. Some race tracks paid better than others. At 5 years of

age the greyhounds would be put up for adoption as pets.

Petitioner contracted with professionals to raise, breed,

board, train, ship, and race his dogs. In addition to handling

contract arrangements, petitioner performed some additional

functions. Petitioner went to dog tracks 3 or 4 nights a week

for 2 or 3 hours to watch his dogs race live and monitor them 

for injuries. Most of the time petitioner went to Wonderland

Greyhound Park in Revere, Massachusetts, which is about a 

5-minute drive from petitioner’s residence. From there

petitioner could also watch his dogs race at tracks all over the

country by simulcast. 

Petitioner purportedly spent 1 hour per day on bookkeeping

and administration and 2 or 3 hours a week talking to contractors

by telephone. Additionally, when one of petitioner’s female
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greyhounds would go into heat, he would be notified by telephone

and then would select an appropriate stud from an official

breeding publication. Petitioner purportedly spent 3 to 5 hours

per month reading professional publications and 5 to 10 minutes

per telephone call related to breeding. The record is silent as

to how many of these phone calls took place. Petitioner did not

keep an appointment book, calendar, or diary that would

constitute a narrative summary of his participation in any facet

of his activity. 

Petitioner did not breed, raise, board, train, ship, or race

his dogs personally. Virtually all of the required services were

performed by other individuals under contract. Further,

petitioner did not own any of the facilities where the services

were performed. At trial petitioner presented phone bills

showing hundreds of telephone calls to out-of-State locations. 

Also, petitioner offered into evidence numerous invoices from

service providers as well as earnings statements from numerous

dog tracks.

Discussion

In general, the Commissioner’s determination set forth in a

notice of deficiency is presumed correct, and the taxpayer bears

the burden of showing that the determination is in error. Rule

142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Under

section 7491(a) the burden may shift to the Commissioner
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regarding factual matters if the taxpayer produces credible

evidence and meets the other requirements of the section. 

Petitioner does not argue that he satisfied the elements for a

burden shift, but even if he did advance this argument,

petitioner did not produce sufficient evidence to support a

burden shift. Accordingly, the burden remains on petitioner to

disprove respondent’s determinations for 2003 and 2004. 

The passive loss rules of section 469 place limitations on

the deduction of losses relating to passive activities; namely,

from activities in which a taxpayer does not materially

participate. Sec. 469(a)(1) and (2), (c)(1), (d)(1). As a

general rule, a taxpayer will be regarded as not materially

participating in an activity if the taxpayer is not involved in

the operation of the activity on a basis which is regular,

continuous, and substantial. See sec. 469(h)(1); sec. 1.469-

5T(a), Temporary Income Tax Regs., 53 Fed. Reg. 5725 (Feb. 25,

1988).

The temporary regulations under section 469 contain seven

tests, the qualification under any one of which will result in a

taxpayer’s being treated as materially participating in the

activity. Sec. 1.469-5T(a), Temporary Income Tax Regs., supra. 

Of the seven tests, petitioner presented evidence and made

general arguments that are applicable only to the tests found in
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section 1.469-5T(a)(1) and (7), Temporary Income Tax Regs.,

supra, which provide that a taxpayer shall be treated as

materially participating in an activity if he participates in the

activity for more than 500 hours during such year, or if, on the

basis of all the facts and circumstances, the taxpayer

participates in the activity on a regular, continuous, and

substantial basis during the taxable year.

A taxpayer may establish the extent of his or her

participation in a particular activity by any reasonable means

and has the burden of proving material participation in the

activity. Rule 142(a); sec. 1.469-5T(f)(4), Temporary Income Tax

Regs., 53 Fed. Reg. 5727 (Feb. 25, 1988). The method of proof,

set out in section 1.469-5T(f)(4), Temporary Income Tax Regs.,

supra, is quite lenient, letting taxpayers prove their time spent

by “any reasonable means.” Reasonable means are not limited to

“Contemporaneous daily time reports, logs, or similar documents”

but include “the identification of services performed over a

period of time and the approximate number of hours spent

performing such services during such period, based on appointment

books, calendars, or narrative summaries.” Id.; see Mowafi v.

Commissioner, T.C. Memo. 2001-111. But despite its apparent

leniency, this section of the regulations does not require us to

believe a “ballpark guesstimate” of the time spent on different

activities. Lee v. Commissioner, T.C. Memo. 2006-193; Bailey v.
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Commissioner, T.C. Memo. 2001-296; Carlstedt v. Commissioner,

T.C. Memo. 1997-331; Speer v. Commissioner, T.C. Memo. 1996-323;

Goshorn v. Commissioner, T.C. Memo. 1993-578.

Petitioner alleges that he materially participated in his

dog racing activity by: (1) Going to dog tracks and watching his

dogs race while monitoring them for injuries for a minimum of 312

and a maximum of 624 hours per year; (2) performing bookkeeping

and administrative functions for 365 hours per year; (3) talking

to contractors on the telephone for a minimum of 104 and a

maximum of 156 hours per year; and (4) spending a minimum of 36

and a maximum of 60 hours per year reading breeding publications

such as those published by the Massachusetts Greyhound

Association. Therefore, in total, petitioner alleges that he

participated in this activity for a minimum of 817 and a maximum

of 1,205 hours per year. 

Petitioner attempts to come within the provisions of section

1.469-5T(f)(4), Temporary Income Tax Regs., supra, by relying on

his own testimony and exhibits such as invoices for services

rendered by the National Greyhound Association and other service

providers, earnings reports from numerous dog tracks, and

telephone bills. Petitioner’s vague time estimates and

supporting documentation do not constitute a “narrative summary”

of petitioner’s participation in this activity. Further,

petitioner failed to call any witnesses who could corroborate his
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testimony regarding the number of hours he estimated he spent

participating in the activity.

As previously noted, petitioner did not keep a diary,

appointment book, calendar, or any other similar type of record

of his participation in the activity. We are left with

petitioner’s self-serving testimony and exhibits that, when

viewed in the most favorable light, fail to prove that petitioner

materially participated in this activity and, when viewed in the

least favorable light, support respondent’s position that this is

a passive activity. “The Court is not bound to accept the

unverified, undocumented testimony of taxpayers, and we decline

to do so in the instant case.” Carlstedt v. Commissioner, supra

(citing Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), affd.

per curiam 540 F.2d 821 (5th Cir. 1976)). 

We believe that petitioner was regularly involved in his

activity for profit but, unfortunately, was unable to demonstrate

and corroborate his material and substantial participation. 

Petitioner could have maintained a calendar, appointment book,

diary, or other record of his participation in the activity to

enable him to meet his burden of proof. Lastly, we believe that

having been engaged in greyhound dog racing for over 25 years,

petitioner has found trustworthy and experienced individuals to

breed, raise, board, train, and race his greyhounds. It would

follow that this would require less material participation by
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petitioner than if he were just starting the activity and

learning how to operate the business. Therefore, on the basis of

the entire record, we hold that petitioner has not met his burden

of proving that he has materially and substantially participated

in the activity in question, and respondent’s determinations are

sustained. 

To reflect the foregoing,

Decision will be entered

for respondent.