Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not *

be published and is not precedent except under the limited circumstances set forth in 5TH CIR.

R. 47.5.4.

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 09-60375

HOWARD AND REBECCA PATE

Petitioners-Appellants

v.

COMMISSIONER OF INTERNAL REVENUE

Respondent-Appellee

Appeal from the Decision of the United States Tax Court

Before GARWOOD, WIENER, BENAVIDES, Circuit Judges.

PER CURIAM:*

Proceeding pro se, Petitioners-Appellants Howard and Rebecca Pate

(individually “Mr. Pate” or “Mrs. Pate”; collectively “the Pates”) appeal a decision

from the United States Tax Court holding them liable for income tax deficiencies

and penalties for their taxable years 2003 and 2004. We AFFIRM the decision

of the Tax Court but REMAND for possible recalculation of the Pates’ 2003 tax

deficiency.

I. Facts and Proceedings

United States Court of Appeals

Fifth Circuit

F I L E D

February 8, 2010

Charles R. Fulbruge III

Clerk

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The Pates were found liable for income tax deficiencies on income earned

in 2003 and 2004. The Tax Court determined that the Pates had improperly

reduced Mr. Pate’s 2003 reported self-employed income earned from his pipeinspection business by listing it as pass-through income to one “Pate Joint

Venture” and off-setting that income with unsubstantiated “other expenses.”

The Pates employed a similar scheme in 2004 by reporting Mr. Pate’s selfemployed income as pass-through income to one “Pate Association” and offsetting that income with improper deductions. Mrs. Pate’s salary as a school

teacher from those years was also listed as income of the “Joint Venture” and the

“Association” respectively.

At trial, the Pate’s testified that these entities were set up on the advice

of their CPA to bring all their income streams together and thereby simplify

their affairs and minimize their tax liability. In support of their claimed

deductions, the Pates asserted inter alia that they were entitled to specified

deductions related to a purported cattle-raising enterprise. The Pate’s testified

that in those years they raised approximately 30 head of cattle for profit on their

52-acre homestead. The Tax Court concluded that (1) that the sparse record

does not reflect that the cattle-raising enterprise was operated with an honest

profit objective and (2) the court did not need to conduct a detailed analysis of

this issue because the Pates had failed to identify or explain, either on their tax

returns or through testimony, any disputed items proffered in support of

deductions from the cattle-raising enterprise. The Tax Court found the Pates

to have tax deficiencies for the 2003 and 2004 taxable years, including penalties,

of $14,647 and $17,446.00 respectively. 

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 The Pates pose three issues on appeal in their brief but each is merely a reiteration 1

of their argument that the cattle raising enterprise was a profit-seeking business entitling

them to deductions from their income.

Payne v. Commissioner, 224 F.3d 415, 420 (5th Cir. 2000). 2

INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). 3

Sandvall v. C.I.R., 898 F.2d 455, 458 (5th Cir. 1990). 4

Westbrook v. Commissioner, 68 F.3d 868, 876 (5th Cir. 1995) (per curiam). 5

 Houston Independent School Dist. v. V.P. ex rel. Juan P., 582 F.3d 576, 583 (5th Cir. 6

2009) (quoting Jauch v. Nautical Servs., Inc., 470 F.3d 207, 213 (5th Cir.2006) (omission not

in original )).

3

The Pates’ sole claim on appeal is that the Commissioner of the Internal 1

Revenue Service erred in not allowing particular deductions purportedly related

to the Pates’ alleged cattle-raising enterprise, which they insist was a legitimate

profit-seeking business. The Commissioner vigorously disputes this contention,

acknowledging only that a minor clerical error was made by the Tax Court in

computing the Pates’ 2003 tax liability for the correction of which the

government seeks limited remand. 

II. Analysis

The Commissioner’s determination of tax deficiency is presumptively

correct. When a deficiency results from the disallowance of a deduction, the 2

taxpayer has the burden of demonstrating entitlement to the deduction. The 3

Tax Court’s determination of a taxpayer’s entitlement to a deduction is a

question of fact and is reviewed for clear error, as is the question of profit 4

motive. “The clear error standard of review ‘precludes reversal . . . unless the 5

court is left with a definite and firm conviction that a mistake has been

committed.’”6

It is axiomatic that income is taxed to the person who earns it and that the

law will not recognize attempted avoidance or evasion by which the “fruits are

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Lucas v. Earl, 281 U.S. 111, 114 (1929). 7

Gregory v. Helvering, 293 U.S. 465, 469 (1935). 8

Moline Props., Inc. v. Commissioner, 319 U.S. 436, 439 (1943). 9

See Fed. R. App. P. 28(e). 

10

Yohey v. Collins, 985 F.2d 222, 224-25 (5th Cir. 1993) (stating that pro se parties are 11

required to cite specifically to the record and that inadequately briefed arguments will not be

preserved).

See McIntosh v. Partridge, 540 F.3d 315, 327 (5th Cir.2008) (internal citations 12

omitted).

4

attributed to a different tree from that on which they grew.” Although it is true 7

that taxpayers have the right to organize their business affairs so as to minimize

taxation, business entities that are created as shams or fictions merely to avoid 8

tax liability will be disregarded by the law.

9

The Pates’ brief is essentially a narrative of facts purporting to establish

that their cattle-raising enterprise was a profit-seeking business, entitling them

to particular deductions from their taxable income in 2003 and 2004. This

narrative covers much of the ground of the Pate’s testimony at trial, but it is

utterly devoid of citation to the record. Furthermore, our review of the entire

record on appeal demonstrates that many of the facts on which the Pates’ seek

to rely are not supported therein. And, even though we construe pro se briefs like

the Pates’ liberally, parties are nevertheless required to assist the court’s

determination by pointing to factual support in the record. Arguments that fail 10

to do so are deemed waived; we do not as a matter of course enlarge the record 11

beyond that which was presented to the trial court. 

12

Limiting our review to the contents of the record on appeal, we conclude

that the Pates’ contention is unavailing. Nothing in the record creates the

“definite and firm conviction” that a mistake was made by the Tax Court. The

Pates’ own testimony proves that the “Pate Joint Venture” and the “Pate

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5

Association” were sham entities created solely to avoid or minimize tax liability,

and neither the 2003 and 2004 returns nor anything else in the record support

the Pates’ contention that the cattle-raising enterprise supported the claimed tax

deductions. The record does, however, reflect that (1) Mr. Pate earned selfemployed income in 2003 and 2004 as a pipe inspector, working approximately

250 days a year away from home; (2) this income was improperly passed through

the sham entities on the Pates’ 2003 and 2004 tax returns, and (3) this selfemployed income was reduced by deductions that were not attributable to cattleraising expenses or to any other documented business expense. Accordingly, we

hold that the Tax Court was justified in (1) deeming the “Pate Joint Venture”

and “Pate Association” to be shams or fictions designed only as vehicles to avoid

reporting income and paying taxes; (2) refusing to recognize the Pate’s purported

cattle-raising enterprise as a bona fide profit-seeking business which could

support income deductions from Mr. Pate’s self-employed income; and (3)

disallowing the Pates’ claimed deductions from the cattle-raising activity.

On appeal, however, the government, has raised sua sponte its discovery

that the Commissioner failed to account for an allowable legal expenses

deduction of $425.00 in the deficiency calculation for the Pates’ 2003 taxes. We

take no position on this question, but we AFFIRM the Tax Court’s judgment in

all respects except for the exclusion of that $425.00 deduction and REMAND

that question to the Tax Court for the limited purposes of (1) determining

whether the 2003 deficiency erroneously excluded the $425.00 deduction and (2),

if so, recalculating the 2003 tax deficiency.

AFFIRMED AND REMANDED.

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