T.C. Memo. 2008-203

UNITED STATES TAX COURT

RALPH THOMAS WHITECAVAGE, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 788-06. Filed August 27, 2008.

Ralph Thomas Whitecavage, pro se.

Jonae A. Harrison, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

THORNTON, Judge: Respondent determined the following

deficiencies and penalty in petitioner’s Federal income taxes:

Accuracy-Related Penalty

Year Deficiency Sec. 6662(a) 

2001 $1,590 --

2002 14,521 $2,904

2003 2,490 --
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The issues for decision are: (1) Whether during 2001, 2002,

and 2003 petitioner engaged for profit in the activity of

breeding greyhounds for racing; and (2) whether petitioner is

liable for a section 6662 accuracy-related penalty for 2002. 

All section references are to the Internal Revenue Code in

effect for the taxable years at issue, and all Rule references

are to the Tax Court Rules of Practice and Procedure.

FINDINGS OF FACT 

The parties have stipulated some facts, which are so found. 

When he petitioned the Court, petitioner resided in Arizona. 

Petitioner was an auditor for the Internal Revenue Service

(IRS) for 21 years, including the years at issue. He was

stationed in the Yuma, Arizona, office of the IRS, where he

worked about 42.5 hours a week before retiring in 2006. 

Petitioner resided on his property about 3 miles from Yuma. 

In 1994 petitioner began breeding greyhounds there for the

purpose of entering them in dog races. Each year he bred a

litter of pups. Over 10 years he raised about 88 greyhounds. 

Before 2002 petitioner kept his greyhounds in crates in his

garage; twice a day he would take them out for exercise. During

2002 petitioner built a 1,000-square-foot kennel and added a new

run and fencing. 

Because of his full-time job at the IRS, petitioner could

not spend much time with the dogs during workdays, but he fed and
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cleaned up after them mornings and evenings. Petitioner did not

hire any caretaker to tend the dogs while he was at work. 

 Petitioner would keep the pups on his property until they

were a little over 1 year old. Then he would send them to

Florida, Oklahoma, or New Mexico to train for racing on a track. 

After being trained, petitioner’s greyhounds were taken to be

raced in Florida and Arizona. Petitioner received a percentage

of any winnings. 

Not all the greyhounds survived training; petitioner “lost”

about 20 greyhounds because of bad training methods by the

trainers in the racing kennels. The greyhounds that survived

spent the rest of their racing lives on the track and generally

did not return to petitioner. Instead, at the end of their

racing lives the greyhounds generally would be “petted out”; 

i.e., sent into an adoption program or to a veterinarian,

presumably to be euthanized. Petitioner received no money for

these dogs upon their retirement.

Before he commenced breeding greyhounds for racing,

petitioner did not consult an economist or other professional

business adviser. Although he received some racetrack winnings,

petitioner never realized a profit from breeding and racing

greyhounds. Petitioner ceased his greyhound activity in 2006,

the same year he retired from the IRS. 
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1 Respondent allowed petitioner miscellaneous itemized

deductions equal to the amounts of gross income reported from the

greyhound activity.

On Schedules C, Profit or Loss From Business, of his Forms

1040, U.S. Individual Income Tax Return, petitioner reported

losses from his greyhound activity as follows:

2001 2002 2003

Gross dog-race winnings $5,695 $3,746 $4,210

Total expenses 15,340 53,230 19,873

Net loss 9,645 49,484 15,663

By notice of deficiency respondent determined that these

reported losses were not allowable under section 183 because

petitioner’s greyhound activity was not entered into for profit.1

Respondent also determined that for 2002 petitioner was liable

for the section 6662 accuracy-related penalty, on the basis that

petitioner’s corrected income tax liability for 2002 was $20,513

rather than the $5,992 that petitioner had reported, giving rise

to a substantial understatement of income tax within the meaning

of section 6662(d). 

OPINION

A. Petitioner’s Greyhound Activity

Under section 183(b)(2), if an individual engages in an

activity without the primary objective of making a profit,

deductions attributable to the activity are allowable only to the

extent of gross income from the activity. See Allen v.

Commissioner, 72 T.C. 28, 33 (1979). The critical inquiry is
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2 Petitioner has not claimed or shown that he meets the

requirements under sec. 7491(a)(1) to shift the burden of proof

to respondent as to any factual issue relating to his liability

for tax. 

whether making a profit is the taxpayer’s “predominant, primary,

or principal objective”. Wolf v. Commissioner, 4 F.3d 709, 713

(9th Cir. 1993), affg. T.C. Memo. 1991-212; Machado v.

Commissioner, T.C. Memo. 1995-526, affd. without published

opinion 119 F.3d 6 (9th Cir. 1997); Warden v. Commissioner, T.C.

Memo. 1995-176, affd. without published opinion 111 F.3d 139 (9th

Cir. 1997). Although the taxpayer need not have a reasonable

expectation of realizing a profit, he or she must have a bona

fide objective to do so. Burger v. Commissioner, 809 F.2d 355,

358 (7th Cir. 1987), affg. T.C. Memo. 1985-523; Golanty v.

Commissioner, 72 T.C. 411, 425-426 (1979), affd. without

published opinion 647 F.2d 170 (9th Cir. 1981); sec. 1.183-2(a),

Income Tax Regs. Whether the taxpayer has the requisite

objective to realize a profit is a question of fact, to be

resolved on the basis of all relevant circumstances, with greater

weight being given to objective factors than to mere statements

of intent. Dreicer v. Commissioner, 78 T.C. 642, 645-646 (1982),

affd. without opinion 702 F.2d 1205 (D.C. Cir. 1983); Golanty v.

Commissioner, supra at 426. The taxpayer generally bears the

burden of establishing that the activity was engaged in for

profit.2 See Rule 142(a). 
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The regulations under section 183 provide a nonexclusive

list of factors to be considered in determining whether an

activity is engaged in for profit. The factors include: (1) The

manner in which the taxpayer carried on the activity; (2) the

expertise of the taxpayer or his advisers; (3) the time and

effort the taxpayer spent in carrying on the activity; (4) the

expectation that assets used in the activity may appreciate in

value; (5) the taxpayer’s success in carrying on other

activities; (6) the taxpayer’s history of income or losses with

respect to the activity; (7) the amount of occasional profits, if

any, which are earned; (8) the taxpayer’s financial status; and 

(9) whether elements of personal pleasure or recreation are

involved. Sec. 1.183-2(b), Income Tax Regs.; see Golanty v.

Commissioner, supra at 426. 

As discussed below, on the basis of all the evidence in the

record we conclude that petitioner did not engage in his

greyhound activity for profit within the meaning of section 183.

1. Manner in Which Petitioner Carried on the Activity

Petitioner did not carry on his greyhound activity in a

businesslike manner. He did not maintain complete and accurate

books and records regarding his greyhound activity, did not

maintain a written business plan, and did not contemporaneously

prepare budgets or financial analyses for his greyhound activity.

Although petitioner claims to have prepared a “cost analysis
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3 At trial petitioner indicated that he wished to call as a

witness Lonnie Boyle, who allegedly hauled petitioner’s dogs to

training sites and leased petitioner’s dogs to run under Mr.

Boyle’s kennel name. Petitioner stated that he expected to

elicit from Mr. Boyle testimony about the “mechanics of the

racing kennel” and “basically what happens to the dogs through

the racing end of it and what happens when it’s petted out.”

Having failed to subpoena Mr. Boyle, however, petitioner failed

to have him available at trial. The Court declined petitioner’s

request to continue the trial to receive Mr. Boyle’s testimony at

some later date. Insofar as it might be pertinent to our

analysis of whether petitioner engaged in his greyhound activity

for profit within the meaning of sec. 183, the subject matter of

Mr. Boyle’s expected testimony, as described by petitioner,

appears largely redundant of undisputed information already in

the record. Moreover, insofar as petitioner may have sought to

elicit expert testimony from Mr. Boyle, petitioner failed to

submit an expert report pursuant to Rule 143(f). 

plan”, at trial he acknowledged that this plan was prepared only

in the course of the audit and examination of the tax years at

issue. His substantiation of claimed expenses was spotty and

consisted largely of some canceled checks supported by his vague

testimony. He had no written contracts with the third parties

who trained, hauled, and raced his greyhounds.3 

Petitioner was licensed with the Arizona Department of

Racing, at least for 2001; he alleges that he was also licensed

with the Texas Department of Racing and the Florida Department of

Racing. He also alleges that he had “some of the best blood

lines in Greyhound Racing in the State of Arizona.” Such

circumstances do not suffice to establish, however, that

petitioner conducted his greyhound activity in a businesslike

manner. This factor weighs against petitioner. 
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2. Expertise of Petitioner or Advisers

Preparation for an activity by extensive study of its

accepted business, economic, and scientific practices, or

consultation with those who are expert therein, may indicate a

profit motive if the taxpayer carries on the activity in

accordance with such practices. Sec. 1.183-2(b)(2), Income Tax

Regs. In analyzing profit motive, a distinction must be drawn

between expertise in the mechanics of an activity and expertise

in the business and economic aspects of an activity. See Burger

v. Commissioner, supra at 359. Failure to consult economic

experts or to develop an economic expertise may indicate a lack

of a profit motive. Id.

Although petitioner presumably acquired some knowledge about

the mechanics of greyhound breeding and racing before he

commenced his greyhound activity, he has not demonstrated that he

consulted economic experts or developed any personal economic

expertise as to how to make a profitable business of his

greyhound activity. This factor weighs against petitioner.

3. Time and Effort Expended in Activity

Time and effort expended in carrying on an activity may be

indicative of profit motive, particularly in the absence of

substantial personal or recreational elements associated with the

activity. Sec. 1.183-2(b)(3), Income Tax Regs. During the years

at issue, petitioner was a full-time IRS employee. At trial
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4 Petitioner claims that in 2000 one of his greyhounds won a

race but acknowledges that by 2001 the greyhound had “finished

her career” as a brood on his farm.

petitioner acknowledged that his full-time IRS job limited the

time he could devote to the greyhound activity. Petitioner had

time to breed only one litter of pups annually. At trial he

conceded that for his greyhound activity to be profitable he

would have needed to breed at least three or four litters

annually. This factor weighs strongly against petitioner. 

4. Expectation That Assets May Appreciate in Value

On brief petitioner contends that the expectation that one

or more of his greyhounds might become a winning “Stakes Dog” was

“a major component” in his decision to engage in his greyhound

activity. He claims that such a dog “could easily have an

expected value price of between $100,000 to $250,000.” The

evidence strongly suggests, however, that petitioner’s greyhounds

generally depreciated in value, being either “lost” during

training or else “petted out” at the end of their racing

careers.4 Insofar as the record shows, in all the years that

petitioner engaged in his greyhound activity, he never sold any

of his dogs. On the basis of the evidence in the record, we are

unpersuaded that petitioner had a bona fide expectation of making

a profit on his greyhound activity by selling his dogs at a price

that would generate sufficient income to offset past losses. 
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5 On brief, petitioner alleges that before going to work for

the IRS he worked in the hotel industry. 

Petitioner claims that improvements made to his property in

2002, such as the addition of a kennel house, added “considerable

value” to his property. There is no evidence, however, that

petitioner held his property with a view of subsequently selling

it for a profit to defray the costs of his greyhound activity. 

Accordingly, we do not take these improvements into account in

judging petitioner’s objective in conducting the greyhound

activity. See Golanty v. Commissioner, 72 T.C. at 430. In any

event, the evidence in the record does not establish either the

cost of the improvements or the extent to which they might have

added to the property’s value. This factor weighs against

petitioner. 

5. Petitioner’s Success in Other Activities

If the taxpayer has engaged in similar activities in the

past and converted them from unprofitable to profitable

enterprises, it may tend to show that the current activity was

entered into for profit, even though it is presently

unprofitable. Sec. 1.183-2(b)(5), Income Tax Regs. Insofar as

the record reveals, petitioner has not engaged in other

activities similar to the greyhound activity by which we might

evaluate his success in those other activities.5 This factor is

neutral. 
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6. History of Income or Losses From Activity

Where losses continue beyond the period which is customarily

necessary to bring the operation to profitable status, it may be

an indication that the activity is not engaged in for profit. 

Sec. 1.183-2(b)(6), Income Tax Regs. As of 2003 petitioner had

realized losses from his greyhound activity for 10 straight

years. This factor weighs against petitioner. 

7. Amount of Occasional Profits

The amount and frequency of occasional profits earned from

the activity may be indicative of a profit objective. Sec.

1.183-2(b)(7), Income Tax Regs. Petitioner never realized a

profit from his greyhound activity. This factor weighs against

petitioner. 

8. Petitioner’s Financial Status

Substantial income from sources other than the activity may

indicate lack of a profit motive, especially if there are

personal or recreational elements involved. Sec. 1.183-2(b)(8),

Income Tax Regs. During the years at issue, petitioner had a

full-time job with the IRS. This factor weighs against

petitioner. 

9. Elements of Personal Pleasure

The presence of personal motives in carrying on an activity,

especially if recreational or personal elements are involved, may

indicate that the activity is not for profit. Sec. 1.183-
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6 In making these observations, we intend no inference as to

any finding of criminal liability of petitioner, an issue which

is beyond the purview of this Court.

2(b)(9), Income Tax Regs. The mere fact that a taxpayer derives

pleasure from an activity, however, does not show a lack of

profit objective if the activity is conducted for profit as

evidenced by other factors. Id. 

Certain aspects of petitioner’s activity, such as feeding,

grooming, and cleaning up after the greyhounds, generally might

not be considered pleasurable, even though they are not so

different from the duties of any pet owner. Ultimately, however,

it seems to us that petitioner’s activity of breeding greyhounds

for racing, although conducted by petitioner in a seemingly

inhumane manner (for many years keeping numerous dogs confined in

crates in his Yuma, Arizona, garage, while he worked a full-time

job at the IRS, sending the pups off to “training” that almost a

fourth of them would not survive, and ultimately casting off most

of the others for possible adoption or destruction)6 involved

recreational elements as are common to other forms of

recreational gambling, with those elements being enhanced by such

sense of sport or gamesmanship as might derive from having one’s

own dogs in the races. This factor weighs against petitioner.

On the basis of all the evidence, we conclude that

petitioner failed to establish that he engaged in his greyhound
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activity with a predominant, primary, or principal objective to

make a profit within the meaning of section 183. 

B. Section 6662 Accuracy-Related Penalty

Section 6662(a) and (b)(2) imposes a 20-percent

accuracy-related penalty on any portion of a tax underpayment

that is attributable to, among other things, any substantial

understatement of income tax, defined in section 6662(d)(1)(A) as

an understatement that exceeds the greater of 10 percent of the

tax required to be shown on the return or $5,000. Sec.

6662(d)(1). Petitioner’s understatement of tax for 2002

($14,521) exceeds $5,000 (which is greater than 10 percent of the

tax required to be shown on his 2002 return ($2,051)). 

Respondent has satisfied his burden of production under section

7491(c). 

The accuracy-related penalty does not apply with respect to

any portion of the underpayment if it is shown that the taxpayer

had reasonable cause and acted in good faith. Sec. 6664(c)(1). 

Petitioner has not shown (or even expressly claimed) that he had

reasonable cause or acted in good faith with respect to his

understatements of income tax. Any such defense appears

especially problematic in the light of petitioner’s employment as

an IRS auditor.
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7 In particular, petitioner states on brief that he

“believes” that he has been audited twice for tax years 2001 and

2002, the first time as part of an investigation by the U.S.

Treasury Inspector General for Tax Administration (TIGTA). He

appears to suggest that because of this purported TIGTA

investigation, the subsequent IRS examination which resulted in

the notice of deficiency that is the subject of this proceeding

was a second examination of petitioner’s books and records that

was prohibited pursuant to sec. 7605(b). Petitioner cites no

authority (and we are aware of none) for the proposition that

sec. 7605(b) applies to a TIGTA investigation of an IRS employee. 

In any event, the evidence in the record does not establish that

respondent ever examined petitioner’s books and records in

connection with any TIGTA audit. To the contrary, according to

petitioner’s representations on brief, the TIGTA audit appears to

have been concluded upon the basis of an interview with

petitioner.

Contentions advanced by the parties and not addressed herein

we conclude to be moot or without merit.7

Decision will be entered

for respondent.