T.C. M em o . 2 0 1 6 -2 3 6

UNITED STATES TAX COURT

URVE V. M OYER, INCOM PETENT, CALVIN L. M OYER, NEXT FRIEND, Pet i t i o n er v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 1 3 9 90 -1 2
. Fi l edDecem b er 2 7 , 2 01 6
.
Cal v i n L. M o y er (s p eci al l y reco g n i zed ), fo r p et i t i o ner. Harry J . Neg ro an d J as o n M . Ku rat n i ck , fo r res p o nd en t.

M EM ORANDUM FINDINGS OF FACT AND OPINION
M ORRISON, J u d g e: Th e res p o nd en t (t h e “ IRS”) i s s u eda n o t ice o f d efi ci en cy

t o the p et i t i o n er, Urv e V. M oy er, fo r t h e 2 0 09 t ax y ear d et erm i n i n g an i n co m e-t ax d efi ci en cy o f $ 9,0 0 6 , a fai l u re-t o -fi l e p en al ty u n der s ect io n 6 6 5 1 (a)(1 )
o f $ 1 , 9 8 4 , a fai l u re-t o-p ay p en al t y u n der s ect i o n 6 6 51 (a)(2 ) o f $ 88 2 , an dan- 2
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[* 2 ] es t i m at ed -t ax p en al ty u n d er s ect i o n 6 65 4 (a) o f $ 2 1 1
. 1 Urv e M o y er t i m el y fi led a p et i ti o n u n d er s ect io n 6 2 1 3 (a) fo r red et erm i n at i o n o f t h e d efi ci en cy an dth e p en al t i es . 2 W e h av e juri s d i ct i o n u n d er s ect i o n 6 2 1 4 (a). Urv e M o y er co n ced es s he i s l i ab l e fo r t h e s ect i o n 6 6 5 1 (a)(1 ), 6 6 51 (a)(2 ),
an d 6 6 5 4 (a) p en al t ies . Th e o n l y rem ai n i ng i s s ues fo r res o l u t i o n are: (1 ) Wh et h er Urv e M o y er i s en t i t l edt o a d educt i o n fo r t ax -p rep arat i on fees
o f $ 2 , 7 1 1 fo r 2 0 0 9 t ax ab l e y ear. W e h ol dth ats h e i s n ot . (2 ) Wh et h er Urv e M o y er i s en t i t l edt o d edu ctcert ai n i tem s as b u s i n es s
ex p en s es u n d er s ect i o n 1 6 2 (a). W e h o ldth ats h e i s n o t. FINDINGS OF FACT So m e fact s are s t i p u l at edan dare s o fo u nd . Th e s t i p u l at io n o f fact s i s i n co rp o rat edb y

thi s referen ce.

1 Un l es s o th erwi s e i nd i cat ed , al l s ect i o n referen ces are t o th e In t ern al Rev enu e Co de i n effect fo r t h e y ear i n i s s u e, an d al l Ru l e referen ces are t o th e Tax Co u rtRu l es o f Pract i ce an dPro cedu re. Al l d o l l ar am ou n t s are ro u nd edt o th e n eares td o l l ar.

2 Urv e M o y er res i d ed i n Del aware wh en s h e fi l edh er p et i t i o n . Th erefo re, an ap p eal o f o u r d eci s i o n i n th i s cas e wo u l dg o t o th e U.S. Co u rto f Ap p eal s fo r t h e Th i rdCi rcu i t u n l es s th e p art i es d es ig n at e t he Co u rto f Ap p eal s fo r an o th er ci rcu i t . See s ec. 7 4 8 2 (b )(1 ) an d(2 ).- 3
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[* 3 ] Urv e M o y er’ s h us b an d , Cal v i n M o y er, was edu cat edas a ch em is t . In1 9 6 8 h e jo i nedDu Po n t , wh ere h e wo rk edch i efl y i n h u m an rel at i on s . As p arto f h i s du t i es h e t rai nedDu Po n t em p l oy ees i n a v ari et y

o f h u m an -rel at i on s t op i cs . In 1 9 9 2 , Du Po n to u t s o urced m u ch o f i t s h u m an -rel at io n s trai n i n g . Cal v i n M o y er t oo kan earl y ret i rem en tfro m Du Po nt i n J an u ary

1 9 9 2 atth e ag e o f 5 0 aft er 2 5 y ears o f s erv i ce. So m et i m e aft er Cal vi n M o y er ret i red , b u t b efo re 2 00 4 , b o t h Cal v in M o y er an dUrv e M o y er b eg anrecei v i n g p en s i o n s fro m Du Po n t . Th ey al s o b o th b eg an recei v i n g So ci al Secu ri ty b en efi t s . In 1 9 9 2 , aft er ret i ri ng fro m Du Po nt , Cal v i n M o y er an d fo u r o th er ret i red Du Po n t em

p l o y ees s t art eda b u s i n es s t o p ro v id e Du Po n twi th h um an -rel at i o n s trai n in g s erv i ces as an o u ts i d e co n tract o r. Th ey p ro vi d ed s erv ices s i m i lar t o th o s e th ey h adp ro v i dedwh en th ey

wo rk ed atDu Po n t . Th ey u l t i m at el y

d i s ag reedo n th e
s trat eg y fo r t h e b u s in es s an dam i cab l y ag reedt o ceas e d o i n g b u s i n es s t og et h er i n 1 9 9 4
. In 1 9 9 4 , Cal vi n M o y er an dAn drew A. M oy er (n o rel at i o n) fo rm ed St rat eg i c Learn i n g Sy s t em s , In c. (“ SLS”). SLS el ect edS co rp o rat i o n s tatu s fo r fed eral -t ax p u rp os es . SLS p ro v id edh u m an -rel at i o n s trai n i n g as a co n tract o r. Itp ro v i d ed i n -cl as s h u m an -rel at i o n s trai n i n g o n a v ari et y o f t o pi cs an d creat eds ev eral b ro ch u res m ark et i n g i t s trai n i n g s erv ices . Th es e trai n i n gs were s tru ctu redas o n e-- 4
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[* 4 ] d ay wo rk s h o p s . In i t i al l y , Du Po n twas SLS’ s o n ly cl i en t. Du Po n trem ai n ed SLS’ s p ri m ary

cl i en t an dco n s t i tu t edatl eas t 8 0 % t o 9 0 % o f SLS’ s t o t al b us i n es s fo r a t i m e. In 1 9 9 6 , An drew M o y er s ep arat edfro m SLS. Cal v in M oy er b ecam e t h e
s o l e o wn er o f SLS. He ran SLS h i m s el f. In 2 0 0 5 , SLS l o s tDu Po n tas a cl i en t . SLS d i d n o th av e o ther reg u l ar cl i en ts . SLS d i dn o tp ri n t an y m ark et i n g b ro ch u res aft er 2 0 0 6. SLS h adn o g ro s s recei p t s fo r 2 0 1 0 , 2 0 1 1, 2 01 2 , 2 0 1 3 , 2 0 1 4, o r 2 0 1 5
. SLS n ei th er k ep tco n t em

p o ran eo u s b o o k s o r reco rd s n o r m ai n t ai n eda b u d g et . Th e s o l e o wn er an d o p erat o r o f SLS, Cal v in M oy er, d i d n o tu s e b o o k s o r
reco rd s t o ev al u at e t h e fi n an ci al p erfo rm an ce o f SLS. No r d i dh e t i m el y fi l e a t ax retu rn fo r SLS fo r t h e 2 0 0 4 , 2 0 0 5 , 2 0 0 6 , 2 0 0 7 , o r 2 0 0 8 t ax ab l e y ear. SLS fi l ed d el i n qu en tretu rn s fo r t h es e y ears o n Fo rm s 1 1 2 0 S, “ U.S. In co m e Tax Retu rn fo r
an S Co rp o rat io n”, i n co n n ect i on wi th p rev io u s Tax Co u rtcas es . Th i s was i n 2 0 1 4 , wh i ch was n o to n ly aft er t h e du e d at es fo r t h e ret u rn s , b u tal so aft er t h e IRS h ad i s s u edn o t i ces o f d efi ci en cy t o h i m (as th e s h areh o ld er o f SLS) o r t o h i s wi fe (b ecau s e s h e s i g n eda jo i n tretu rn wi th h i m ). As Cal v i n M o y er ackn o wl ed g edi n h i s t es ti m o n y , th e p rep arat i o n o f t h e Fo rm s 1 1 2 0S i n 2 0 1 4 was th e fi rs to ccas i o n- 5
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[* 5 ] o n wh i ch h e ev er d et erm i n edth e an n u al ex pen s es o f t h e S co rp o rat i on fo r t ax p u rp os es o r an y

o th er p urp os e. Nei ther Urv e M o y er n o r Cal v i n M o y er t i m el y fi l eda fed eral i nco m e t ax retu rn fo r t he 2 0 0 9 t ax ab l e y ear, n o r d i dSLS. OnFeb ru ary 2 7 , 2 0 1 2, the IRS m ai l edUrv e M oy er a s ubs t i tu t e fo r retu rn (“ SFR”) an da n o t i ce o f d efi ci en cy fo r h er 2 0 0 9 t ax ab l e y ear. Th e n o t i ce o f d efi ci en cy

u s edth e m arri ed -fi li n g -s ep arat el y fi l i n g s tatu s an d d et erm i n eda d efi ci en cy

o f $ 9 ,0 0 6 al o n g wi th p en al t i es p u rs uan tt o s ect i o ns 6 6 5 1 (a)(1 ), 6 6 5 1 (a)(2 ), an d6 65 4 (a). Urv e M o y er t i m el y

fi l eda p et i t i o n wi th th i s Co u rt . OnOct o b er 2 0 , 2 01 4 , Urv e M o y er an dCal v i n M o y er s ub m i t t edt o the IRS a jo i n t fed eral i n co m e t ax retu rn fo r t he 2 0 0 9 t ax ab l e y ear o n Fo rm 1 0 4 0 , “ U.S. In d i v i du al In co m e Tax Retu rn ”. Th is retu rn i n cl u d edi tem izedd edu ct io n s o n Sch edu l e A, “ It em izedDedu ct i o n s”. Cal vi n M o y er al s o s ub m i t t edt o th e IRS an i n co m e t ax retu rn fo r SLS o n Fo rm 1 1 2 0 S fo r t h e 2 0 09 t ax ab l e y ear. Cal v i n M o y er was the s o l e o wn er o f SLS duri n g th e 2 00 9 t ax ab l e y ear. He ad m it t edi n h i s t es ti m o n y

thatSLS h as n o tearn eda p ro fi ts i nce at l eas t2 0 0 4
. Th e l o s s es rep o rt edo n the Fo rm s 1 1 2 0 S fo r 2 0 0 9 an dp ri o r y ears were as fo l l o ws :- 6
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[* 6 ] Year Gro s s recei p t s Ex p en s es Lo s s

2 00 4 $ 4 ,6 1 8 $ 3 9,8 8 4 ($ 35 ,2 6 6 ) 2 00 5 6 ,2 4 1 1 4,5 2 3 (8 ,2 8 2 ) 2 00 6 9 4 1 8,7 4 4 (1 8 ,6 5 0 ) 2 00 7 1 ,2 8 9 2 8,5 8 3 (2 7 ,2 9 4 ) 2 00 8 2 ,5 0 0 2 0,1 9 6 (1 7 ,6 9 6 ) 2 00 9 0 5,7 9 5 (5 ,7 9 5 ) Onth e 2 0 0 9 Fo rm

1 0 4 0 , th e M o y ers rep o rt edwag e i n co m e o f $ 1 0 , 9 9 8 , t o t al t ax ab l e ret i rem en td i st ri b u ti o ns o f $ 5 9 ,2 02 , an dt o t al g ro s s So ci al Secu ri ty b en efi t s
o f $ 4 1,3 7 2 . OnthatFo rm 1 04 0 t h ey

cl ai m eda d edu ct i o n fo r a p as s th ro u g h l o s s o f $ 5 ,7 9 5 fro m

SLS fo r t h e 2 0 0 9 t ax ab l e y ear. Th ey al s o cl ai m ed a d edu ct i o n fo r t ax -p rep arat i on fees o f $ 2 ,7 1 1 o n th e Sch edu l e A. Th e IRS ex am i n ed th e M o y ers ’ l at e-fi l ed jo i n tretu rn fo r 2 0 0 9. It d i s al lo wedth e cl ai m edd edu ct i o n s fo r t ax -p rep arat i o n fees o f $ 2 ,7 1 1 an dth e $ 5 ,7 9 5 p as s th ro ug h l o ss fro m SLS. Aft er fi l i n g h er Fo rm

1 0 4 0 l at e, Urv e M oy er p ro v i d edth e IRS an as s o rt m en t
o f recei p ts , i nv o i ces , an do rd er co n fi rm at i on s an das s ert edth atthes e d ocu m en t s
s ub s t an t i at edthe b us i nes s ex pen s es o f SLS fo r t h e 2 0 0 9 t ax ab le y ear. Sh e- 7
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[* 7 ] i n tro du cedth es e d o cu m en t s attri al . Th i s as so rt m en to f d o cu m en ts i n d i cat ed th atCal v i n M o y er o r SLS p ai d fo r t h e fo l l o wi n g i t em s :

• 2 co m

p u t ers
• 2 m o n i t o rs
• 2 s peak ers
• 5 wi rel es s m i ce
• 4 m i cro p h o n es
• 4 web cam s
• 7 p ri nt ers
• 5 b o x es o f b l an kDVDs
• 1 50 co o ler b ag s
• 1 fo l di n g t ab l e
• 1 d i g i t al cam era
• Vari o u s o th er o rd i n ary el ect ro n i c an do ffi ce s up p l i es Th e d ocu m en tat io n al s o i n cl ud edi n fo rm at i o n ab o u ta m o n th l y cab le t el ev i s i o n ch arg e, an da fam i l y

t al kt el ep h o n e p l anwi th fo u r t el ep h o n e num b ers . Befo re t ri al , th e p art ies ag reedth atthe fo l l o wi n g are t h e co rrect am o u n t s o f
v ari o u s t ax i t em s rep o rt edo n Urv e M o y er’ s jo in tretu rnfo r 2 00 9 :- 8
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[* 8 ] It em Per ret u rn Per ex am As ag reed W ag es $ 1 0 ,9 9 8 $ 1 1 ,3 2 4 $ 1 1 , 3 2 4 In teres ti n co m e 0 10 3 1 0 3 Ret i rem en t d i s tri b u t i o n 5 9 ,2 0 2 5 9 ,4 0 3 5 9 , 4 0 3 So ci al Secu ri ty

(g ro s s ) 4 1 ,3 7 2 4 1 ,0 1 2 4 1 , 0 1 2 IRA d edu ct i o n 50 0 50 0 5 0 0 To t al ex em

p t i on am o u n t 7 ,3 0 0 7 ,3 0 0 7 , 3 0 0 Sch edu l e A (t ax es p ai d ) 5 ,0 7 3 5 ,0 7 3 5 , 0 7 3 Sch edu l e A (i n t eres tp ai d ) 1 4 ,2 8 6 1 4 ,2 8 6 1 4 , 2 8 6 Sch edu l e A (ch ari t ab l e g i ft s ) 15 0 15 0 1 5 0 To t al p aym en t s an dcred i t s (6 ,4 0 1) (6 ,4 0 1) (6 ,4 0 1 ) Th e p art i es al s o s ti p u l at edth atUrv e M o y er i s l i ab le fo r p en al t i es p urs u an t t o
s ect i on s 6 6 5 1 (a)(1 ), 6 6 5 1 (a)(2 ), an d6 6 5 4 (a) fo r t h e 2 0 0 9 t ax ab l e y ear. Ati s s ue rem ai ns (1 ) wh eth er Urv e M o y er i s en ti t l edt o a d edu ct i o n o n Sch edu l e A fo r t ax -p rep arat i o n fees an d (2 ) wh et h er s h e i s en t i t l edt o d edu ctth e cl ai m edp as s th ro u g h l o ss fro m SLS. Th e IRS arg u es th ats h e d i dn o ts ub st an t i at e th e t ax -p rep arat i o n fees . Th e IRS d o es n o td i s p u t e t h atth e ex p en s es s t emm i n g fro m th e p as s thro ug h l o ss were i n cu rred , b u t i tas s ert s th atn o n e o f t h e ex p en s es- 9
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[* 9 ] were o rd i naryan dn eces s ary ex p en s es o f an act i ve t rad e o r b u s i n es s fo r t h e 2 0 0 9 t ax ab l e y ear. 3 OPINION Th e t ax p ay er g en eral l y

h as th e b u rd en o f p ro v i n g th atth e d et erm i n at i o n s i n th e n o ti ce o f d efi ci en cy

are i nco rrect . Ru l e 1 4 2(a)(1 ); W el ch v . Hel v eri n g , 2 9 0 U.S. 1 1 1 , 1 1 5 (1 9 3 3 ). Urv e M o y er d o es n o tco n t en dth atth e co n d i t i o n s s etfo rt h i n s ect io n 7 4 9 1 (a) fo r s h i ft i n g th e b urd en o f p ro o f t o th e IRS h av e b een s at i s fi ed
. No r d oes th e reco rds h o w th atth e co n d it i on s h av e b een s at i s fi ed
. Thu s, th e b u rd enrem ai n s o n h er fo r al l rem ai n in g i s s u es . See Ru l e 1 4 2 (a); New Co l o n i al Ice Co . v . Hel v eri n g , 2 9 2 U.S. 4 3 5 , 4 4 0 (1 93 4 ). (1 ) Tax -p rep arat i o n fees Urv e M o y er’ s o nl y

p os t tri al b ri ef (h er o p en i n g b ri ef; s h e d i d n otfi l e an
an s weri n g b ri ef d es p i t e b ei n g g ran t eds ev eral ex t en si o n s o f t i m e t o d o s o ) d o es n o t ad dres s th e i s s u e o f t h e d educt i o n s s h e cl ai m edo n h er Sch edu le A fo r t ax 3 In a cas e i nv o l v i ng a d efi ci en cy d et erm i n at io n wi th res p ectt o Urv e M o y er’ s 2 0 0 7 t ax y ear we h el dth ats h e was en t i t l edt o a $ 2 3 7 d edu ct io n fo r ex p en s es p as s edth ro u gh fro m SLS t o h er h u s b an d . M o y er v . Co m m is s i o n er, T.C. M em o. 2 0 1 5 -4 5 , at* 1 0 . Fo r th e 2 0 0 7 y ear, as wi th the 2 0 0 9 y ear, s h e fi l eda jo i n t retu rn wi th h er h u s b an dan dth erefo re h ada t ax l i ab i l i ty b as ed o n h er an d h er h u s b an d ’ s co m

b in edg ro s s i n co m e, i n cl u d i n g h i s i n co m e an dl o s ses p as s ed th ro u g h t o h i m

b y SLS. See s ec. 1 .6 0 1 3 -4 (b ), In co m e Tax Reg s .; s ee al so s ec. 1 3 6 6 (a). In th e 2 0 0 7 cas e t h e IRS d i dn o tqu es t io n SLS’ s s t atu s as a t rad e o r b u s i n es s . It d o es i n th is cas e.- 1 0 -

[* 1 0 ] p rep arat io n fees . Is s u es th atare n o t ad dres s edi n th e o p en in g b ri ef are
co n si d eredco n ced ed
. See Ru l e 1 5 1 (e)(4 ) an d(5 ); Pet zo l d t v . Co m m i s si o n er, 9 2 T.C. 6 6 1 , 6 8 3 (1 9 8 9 ); M o n ey v . Co m m i s s i on er, 8 9 T.C. 4 6 , 4 8 (1 9 8 7 ). Th erefo re,
s h e h as wai v edan y arg u m en ts reg ard in g th e d edu ct i b i l it y o f h er t ax -p rep arat i o n fees
. See Ru l e 1 5 1 ; Ni ck l au s v . Co m m is s i o n er, 1 17 T.C. 1 1 7, 1 2 0 n .4 (2 0 0 1 ). Acco rd in g ly , we h o l dth ats h e i s n o ten ti tl edt o an i tem izedd edu ct io n o n Sch edu l e A fo r h er t ax -p rep arat i o n fees
. (2 ) Act i ve t rad e o r b u s i n es s Sect io n 1 6 2 al l o w s a d edu ct i o n fo r al l o rd i n ary an dn eces s ary

ex p en s es p ai d
o r i n cu rreddu ri n g th e t ax ab l e y ear i n carry i n g o n a t rad e o r b u s i n es s . Th e IRS
as s ert s th atCal v i n M o y er’ s al l eg edb u s i n es s co n du ct edth ro u g h SLS 4 was an act i vi ty n o ten g ag edi n fo r p ro fi t(an dth erefo re was n o t an act i v e t rad e o r b u s i n es s ) wi th i n th e m ean i n g o f s ect i o n 1 83 an dthatth e d edu ct i o n s at tri b ut ab l e t o th atact i v i ty

s h o ul db e l i m i tedacco rd i n g l y . See s ec. 1 83 (a) an d(b ). Wh et h er an act i vi ty i s en g ag edi n fo r p ro fi t fo r p u rp o s es o f s ect i o n 1 6 2 an d s ect io n 2 1 2 i s

4 Th e SLS act i v i ty was Cal v i n M o y er’ s , n o tUrv e M o y er’ s . He o wn edSLS an d co n du ct ed th e act i v it y rep o rt edb y

SLS o n i ts Fo rm

1 1 2 0 S. Bu t Urv e M o y er fi led a jo i n t retu rn wi th Cal v i n M o y er. Al th o u g h th e ret urn was fi l edl at e, i t es t ab l i s h eda jo i ntl i ab i l i ty ag ai n s tUrv e M o y er fo r t he i n co m e t ax o n the co up l e’ s co m b i nedi n co m e. See s ec. 1 .6 0 1 3 -4 (b ), In co m e Tax Reg s . Th i s co m b i n ed i n co m e i s cal cu l at edb y

i ncl u d i n g Cal v in M oy er’ s p as s th ro ug h l os s fro m SLS. See s ec. 1 3 66 (a).- 1 1 -

[* 1 1 ] d et erm in edu n d er s ect i on 1 8 3. See Ki n g v . Co m m i s s i o n er, 1 16 T.C. 1 9 8 , 2 0 4 -2 0 5 (2 0 0 1 ). Sect i on 1 83 (c) d efi n es an “ act i v i ty n o ten g ag ed i n fo r p ro fi t ” as

“ an y act i v i ty o th er t h an o n e wi th res p ectt o wh i ch d edu ct i o n s are al l o wab l e fo r t h e t ax ab l e y ear u nd er s ect i o n 1 6 2 o r u n d er p arag rap h (1 ) o r (2 ) o f s ect io n 2 1 2 .” If an act i vi ty i s n o t en g ag edi n fo r p ro fi t, s ect io n 1 8 3 (b ) al l o w s o n l y th o s e d edu ct i o n s th atare n o t d ep en d en tup on a p ro fi t m o t i v e an dth o s e d edu ct i o n s th atwo ul d
o th erwi s e b e p erm it t edi f t h e act i v i ty was en g ag edi n fo r p ro fi t , b u to n l y t o th e
ex t en tth atth e g ro s s i n co m e d eri v edfro m the act i vi ty ex ceed s th e d edu ct i o n s that
are n o td ep en d en tup on a p ro fi t m o t i v e. Wh et h er a t ax pay er i s en g ag edi n an act i vi ty fo r p ro fi ttu rn s o n wh eth er t h e t ax p ay er h as an actu al an dh o n es to b ject iv e o f m ak i n g a p ro fi t . Drei cer v . Co m m i s s i o n er, 7 8 T.C. 6 42 , 6 4 4 (1 9 8 2 ), aff’ d wi th o u t p ub l is h edo pi n i o n , 7 0 2 F.2 d1 2 0 5 (D.C. Ci r. 1 9 8 3 ). A reas o n ab l e ex p ect at i o n o f p ro fi ti s n otreq u i redas l o n g as th e t ax pay er h as an actu al an d h o n es to b ject iv e o f m ak in g a p ro fi t . Sec. 1 .1 83 -2 (a), In co m e Tax Reg s .; s ee al s o Drei cer v . Co m m i s s i o n er, 7 8 T.C. at 6 4 4 -6 4 5 ; Go l an ty

v . Co m m i s s i o n er, 7 2 T.C. 4 1 1 , 4 2 5 -4 2 6 (1 97 9 ), aff’ dwi th o u t p ub l i s h edo p i n i o n, 6 4 7 F.2 d1 7 0 (9 th Ci r. 1 9 81 ). Wh et h er t he t ax p ay er h adth e req u is i te p ro fi t m o t i v e i s a qu es t io n o f factt o b e d et erm i n edo n th e b as i s o f t h e en t i re reco rd . En g d ah l v . Co m m is s i o n er, 7 2 T.C.- 1 2 -

[* 1 2 ] 6 5 9 , 6 66 (1 9 79 ). Th e t ax p ay er’ s m ot i v e reg ard i n g h i s o r h er p ro fi to b ject i v e
m u stb e d et erm i nedb y

an an al y s i s o f al l th e s u rro u nd i n g o b ject i v e fact s , wi th g reat er wei g h tg i v en t o s u ch o b ject i ve fact s than t o th e t ax p ay er’ s m ere s t at em en t
o f i n t en t . Sec. 1 .1 8 3 -2 (a) an d (b ), In co m e Tax Reg s.; s ee al s o Ch urch m an v . Co m m i s s i o n er, 6 8 T.C. 6 96 , 7 0 1 (1 9 7 7 ). Sect io n 1
. 1 8 3 -2 (a) an d (b ), In co m e Tax Reg s., s et s fo rt h rel ev an t fact o rs , d eri v edfro m cas el aw, th atm ay b e co n si d eredi n d et erm i n i n g wh eth er an act i v i ty i s en g ag edi n fo r p ro fi t . J as i on o w s k i v . Co m m i s s i o n er, 6 6 T.C. 3 12 , 3 2 1 (1 9 7 6 ); Ben z v . Co m m i s s io n er, 6 3 T.C. 3 7 5 , 3 8 3 (1 9 7 4). Th e reg u lat i o n s p ro v i de t h atn o o ne fact o r i s co n cl u s i v e an dth ata d eci s i o n i s n o treach edm erel y b y co u n ti n g th e fact o rs th ats up p o rteach p os i t i o n . Sec. 1 .1 8 3 -2 (b ), In co m e Tax Reg s . W e wi l l d eal wi th th e en t ire reco rdi n th e
co n tex to f t h e p art i es ’ arg u m en t s . See Taub e v . Co m m i ss i o n er, 8 8 T.C. 4 6 4 , 4 79
- 4 8 1 (1 98 7 ). Al th ou g h h um an -rel at i o n s trai n i n g i s n otth e t y p e o f act iv i ty

i n v o l vi n g p ers o n al p l eas u re o r recreat i o n th ati s o ft en as s oci at edwi th s ect i o n 1 8 3 qu es t i o n s , s ect i on 1 8 3 i s n o t l i m i t ed t o s o -cal l edh o b b y l o s s es . Fo r ex am

p l e, t h e p ro fi t-o b ject i v e an al y s i s o f s ect i o n 1 8 3 ap p l i es t o t ax s h el t er i n v es t m en t s , Beckv . Co m m i s s i o n er, 8 5 T.C. 5 57 , 5 6 9 (1 9 8 5 ), an d t o p u t at i v e t rad es o r b u s i n es ses , El l i ot tv . Co m

m i s s i o n er, 9 0 T.C. 9 6 0 , 9 6 9 (1 9 8 8 ), aff’ dwi th ou tp ub l i s h edo p i n i o n,- 1 3 -

[* 1 3 ] 8 9 9 F.2 d1 8 (9 th Ci r. 1 9 9 0 ). Onth e b as i s o f al l o f t h e fact s an d ci rcu m s t an ces , we co n cl u de t h atCal v i n M o y er d idn o t en g ag e i n th e act i v i ty fo r wh i ch h e fi l edthe Fo rm 1 1 2 0S wi th an actu al an dh o n es to b ject i ve o f m ak i n g a p ro fi t du ri n g th e y ear i n i ss ue. Th e reco rdas a wh o l e i n di cat es th atth e M o y ers
u s ed SLS as a v eh i cl e t o cl ai m v ari o u s p ers o nal , l iv i n g , o r fam i ly ex p en s es as b u s i n es s d edu ct i o n s. Th o u g h o u r h ol d i n g co n s id ers o n l y wh eth er Cal v i n M o y er h ad an actu al an d h o n es to b ject i v e o f m ak i n g a p ro fi tan dn o twh et h er h e act u al l y
en g ag edi n h is al l eg edb u si n es s act i v i ty , we are s k ep t i cal th an an y s u ch act i v i t y t o o kp lace d u ri n g t h e y ear i n i ss u e. In d et erm in i n g wh et h er Cal v i n M oy er h adan actual an dh o n es to b ject i v e o f
m ak i n g a p ro fi t, we fi rs tco ns i der wh et h er h e co n du ct edSLS’ s al l eg edact i v i ty i n a b u s i n es s l i k e m an n er, a fact or d es cri bedi n s ect i o n 1 .1 8 3 -2 (b )(1 ), In co m e Tax Reg s. Cal v i n M o y er t es t i fi edth ath e d i dn o tat tem p tt o d et erm i ne t h e ex p en s es o f SLS u n t i l aft er t he IRS i s s u edn o t i ces o f d efi ci en cy . He al so fai l edt o k eep
accu rat e b o o k s an d reco rd s . Attri al , Cal v in M oy er t es t i fi edth ath e i s “ no tg o o dat k eep in g reco rd s ”. SLS n ei th er k ep t co nt em p o ran eo u s reco rd s n o r m ai n t ai n eda b u d g et . Becau s e SLS d i dn o tk eep co n tem po ran eo us b o o k s an dreco rd s , Cal v i n M o y er h adn o b o o k s fro m wh i ch h e co u l dev al u at e SLS’ s p ro fi t ab i l i ty . M o reo v er, SLS d i dn o tfi l e i nco m e t ax retu rn s fo r t he 2 0 0 4 th ro u g h 2 0 0 9 t ax ab l e y ears i n th e- 1 4 -

[* 1 4 ] n o rm al co u rs e o f b u s in es s . SLS fi l edretu rn s o n l y i n co n n ect i o n wi th Tax Co u rtcas es , s ev eral y ears aft er t h e du e d at es . Attri al wh en as kedwh et h er fai l i n g t o t im el y fi l e i n co m e t ax retu rn s i s a g o o db u s in es s p ract i ce, Cal v i n M o y er
res p o n d ed : “ Itcert ai n ly

i s n ’ t .” Al l o f t h es e fact s i n d i cat e a fai l u re t o co n du ctth e act i vi ty i n a b u s i n es s li k e m an n er, wh i ch i n tu rn i n d i cat es th e l acko f a p ro fi t
m o ti v e. Cal v i n M o y er was so l el y res p o n s ib le fo r SLS. Des pi t e l o s i n g Du Po n tas a cl i en t an dh av i n g dwi n d l i n g g ro s s recei pt s s i n ce 2 0 0 4 an dn o g ro s s recei p t s fro m 2 0 0 9 thro u g h 2 0 1 5 , n o th in g i n th e reco rds u g g es ts thath e ex p en d edm u ch t i m e
an d effo rti n at t em

p t i n g t o m ak e SLS p ro fi t ab l e. See i d . s ub p ara. (3 ). Du ri n g the t ax y ear i n i s s u e Cal v i n M o y er h adn o h u m an -rel at i on s -trai n i n g wo rkan d d i dn o t
s p en d an y t i m e o r effo rtd ev el op i n g n ew b u s i n es s . Th e t y p e o f ex p en s es SLS at t em p t s t o d edu ctfo r t h e y ear are n o to b vi o u s l y an ythi n g b u tp ers o n al ex p en s es . An o th er i n d icat i o n th atCal v in M o y er d id n o t h av e an actual an dh o n es t p ro fi t o b ject iv e was th e fact th atfro m 2 0 0 4 th ro ug h th e y ear i n i s s u e, SLS d i dn o t rep o rtan y

g ai n s o n i t s Fo rm

1 1 2 0 S b u t i n st eadrep o rt eda s i zab l e l os s fo r each y ear. SLS rep o rt eda l o s s fo r each o f t he y ears 2 0 0 4 th ro u g h 2 0 0 9
. See s up ra p p .5 -6
. Fo r each o f t h es e y ears , SLS rep o rt edex p en s es far ex ceed i ng i t s g ro s s recei p t s. As Cal v i n M o y er ad m i t t ed , SLS h ad n o g ro s s recei p t s fo r 2 0 1 0 , 2 0 1 1 ,- 1 5 -

[* 1 5 ] 2 0 1 2 , 2 0 1 3 , 2 0 14 , o r 2 0 1 5 . A reco rdo f l os s es o ver s ev eral y ears i s p ers u as i v e ev i d en ce th atth e t ax p ay er d idn o th av e t h e req u is it e p ro fi to bject i v e. See s ec. 1 .1 8 3 -2 (b )(6 ) an d(7 ), In co m e Tax Reg s . Al tho u gh Cal v i n M o y er m ay h av e o ri g i n al l y

h ada p ro fi to b

j ect i v e wh en h e i n co rp o rat edSLS i n 1 9 9 4, we fi n d th atth is was n o l o n ger t h e cas e du ri n g th e y ear i n i s s u e. By 2 0 0 9 SLS was m erel y
a co n ven i en t d ev i ce b y

wh i ch th e M o y ers co u ldtry t o d edu cto th erwi se
n o n d edu ct i b l e p ers o nal ex p en s es . 5 Ev en tho u g h Cal vi n M o y er d i dn o th av e an actu al an dh o nes tp ro fi t
o b ject i ve, Urv e M o y er co ul ds t i l l t ak e t h o se d edu ct i o n s th atwo u l db e p erm i t t edi f th e act i v i ty

was en g ag edi n fo r p ro fi t , b u to n l y t o the ex t en to f th e g ro ss i n co m e rep o rt edfro m

th e act i v i ty . See s ec. 1 8 3 (b )(2 ). Si nce SLS h adn o g ro ss i n co m e fo r th e 2 0 09 t ax ab l e y ear, Urv e M o y er i s n o ten t i t l edt o d eductan y o f t h e $ 5 , 7 9 5 l os s rep o rt edb y

SLS. In reach i n g o u r h o ld in g s , we co n s i d eredal l arg u m en t s m ad e, an d , t o th e
ex t en tn o tm en t i o n ed , we co n cl u d e t h atth ey are m o o t , i rrel ev an t , o r wi th o utm eri t .

5 Urv e M o y er arg u es th atSLS’ s l acko f o perat i n g p ro fi t s s h o u ldb e o v erl o o k edb ecau se SLS ret ai n s v al u e i n i t s i n t el lect u al p ro p ert y . See s ec. 1 .1 8 3
- 2 (b )(4 ), In co m e Tax Reg s . W e fi n dth i s arg u m en t wi th o u t m eri tb ecau s e Urv e M o y er fai l ed t o s h o w th atSLS actu al l y o wn s the ri g h t s t o an y

i n tel l ectu al p ro p erty . M o reo v er, n o th in g i n t h e reco rd i n d i cat es th atCal v i n M o y er co ul d recap tu re l o s s es b y

s el li ng SLS o r an y

i nt el lect u al p ro p erty .- 1 6 -

[* 1 6 ] To refl ectthe fo reg o i n g , Deci s i o n wi ll b e en t eredu n d er Ru l e 1 5 5
.