Pursuant to 5 T H C IR . R. 47.5, the court has determined that thi s opinio n should not * be publishe d an d is not precedent except under the limited circu mstance s set forth in 5 T H C IR . R. 47.5 .4. 

### INTHE UNI TED S TATESCOU RT OFAPPEALS

FORTHE FIFTH CIRCU IT

N o. 09- 60375
H OW ARD AN D RE BEC CA PATE P eti ti on ers-A p p ell a n ts v. CO M M I S S I ONE R OF I NT ER NAL R EV ENUE R espon den t
- A pp el l ee

A p p ea lf

rom the D ecisi on of th e U n i ted S tates T a x C ou rt
B e fo r e G A R W O O D , W IE N E R , B E N AV ID E S , C ir c u it J u d g e s . P E R C U R I A M: *
Proc ee di ng pro se , P eti ti on ers-A p p ell a n ts H ow a rd an dR e b ecca P a te (i n di vi du al l y “M r. P ate” or “M rs. P at e ” ; c o ll ect ivel y “ t h e P ates” ) app eala deci si on f rom t h e U n i t ed Stat es T ax C ou rt h ol di n g t h em l i able f or i n com e t ax d ef

i ci en ci es an d p en al t i es f

or t h ei r t axa bl e years 20 03 an d 200 4. W e A F F IR M t h e deci si on of t he T ax C our tbu tR E M A N D forposs ibl e re c al c ul at i on o f t he Pat es ’2003 t ax def i c i enc y. I . Fact s and P r oce edi ngs United States Court of App eals Fifth Circuit 

### F I L E D Februar y 8, 2010 Cha rl es R. F ulb ru g e II I Clerk Case: 09-60375 Document: 00511022635 Page: 1 Date Filed: 02/08/2010N o. 09- 60375

2 T h e P ates w ere f

ou n d l i able f

or i n com e t ax d ef

i ci en ci es on i n com e earned in 2 0 0 3 a n d2 0 0 4
. T h e T a xC o u r t d e te r m in e dth a t t h e P a te s h a d im p r o p e r ly redu ced M r. P ate’ s 2003 report ed sel f

- em pl oyed i n com e earned f rom hi s pi pei ns pe c t i o n b us i ne s s b y l i s t i ng i t as pa s s - t hr o ugh i nc o m e t o o ne “ Pat e J o i nt V e n tu r e ” a n do ff-s e tt in gth a t in c o m e w ith u n s u b s ta n tia te d“o th e re x p e n s e s .” T h e P a te s e m p loy e da sim il a r s c h e m e in2 0 0 4 b yre p o rtin gM r. P a te ’ s s e lfe m p lo y e din co m e a s p a ss -th ro u g h in co m e to o n e “P a te A ss o cia tion ” a n doffset t i n g t h at i n com e w i t h i m p ro p e r d edu ct i on s. M rs. P ate’ s s al ary as a school t e ac he rf

r o m t ho s e y e ar s w as al s o l i s t e d a s i nc o m e o f t he “Jo i ntVent ur e ” a nd t he

“A ss oc i at i on” r es pec t ively. A tt ri al , t h e P ate’ s t est i f i ed that t h ese en t i t i es w ere set u p on t h e adv i ce o f th e ir C P Ato b rin ga llth e ir in c o m e str e a m s to g e th e r a n dth e re b ysim p li fy th ei r af fai rs an d m i n i m i ze t h ei r t ax l i abil i t y. I n sup port of t h ei r c l ai m ed de duc t i o ns , t he Pat es a s s e r t e d in tera liat h at t h ey w ere enti t l ed to speci f i ed ded u ct i on s r el ated t o a pu rport ed catt l e- rai si n g en t erpri se. T h e P ate’ s t est i f i ed th a t in th o s e y e a r s th e yra is e da p p r o x im a te ly3 0 h e a do f c a tt le fo rp r o fit o n th e ir 52-ac r e ho m e s t e ad
. The TaxCour tc o nc l ude d t hat( 1) t hatt he s pa r s e r e c ord does n otref

l ectt h at t h e cat t l e- rai si n g en t erpri se w as operated w i t h an hon est prof i tobj ect ive an d ( 2) t h e cou rt d id n o t need t o condu cta detai l ed an al ysi s of t hi s i ss ue be c ause t he Pat es had fai l ed t o i dent i f y o rex pl ai n, ei t heron t hei rt ax ret u rns or t h ro u g h testi m on y, an y di spu t ed i t em s prof fered i n sup port of ded u ct i on s f

rom t h e catt l e- rai si n g en t erpri se. T h e T ax C ou rtf ou n d the P ates t o ha ve t ax defi ci en ci es f or t h e 200 3 an d 20 04 taxab l e years, i n cl u di n g pen al t i es, o f $ 1 4 ,6 4 7 a n d$ 1 7 ,4 4 6 .0 0 re s p e c tiv e ly
. Case: 09-60375 Document: 00511022635 Page: 2 Date Filed: 02/08/2010N o. 09- 60375

The Pates po se three issues on appeal in their brief but each is merelya reiteration 1 of their argument th at the cattle raisin g enterprise was a profit-see k in g bu sine ss entitling them to de ductions from their income. Payne v. Commissio ner , 2 2 4F .3 d 4 1 5 , 4 2 0( 5 thC ir
. 2 0 0 0). 2 INDOPCO, Inc. v. Commissio ner , 5 0 3U .S
. 7 9 , 8 4( 1 9 9 2). 3 Sandvall v. C.I

.R. , 8 9 8F .2 d 4 5 5 , 4 5 8 (5 thC ir
. 1 9 9 0). 4 West brook v. Commissio ner , 6 8F .3 d 8 6 8 , 8 7 6( 5 thC ir
. 1 9 9 5) (p ercuri a m). 5 Ho uston Indepe ndent Schoo l Di st. v. V. P. ex re l. Juan P. , 582 F.3d 57 6, 583(5th Cir. 6 2009) (quoting Jauch v. Nau tical Servs ., I nc. , 470 F.3 d 207 , 213 (5th Cir.200 6) (omissionnot inori gin al ))
. 3 Th e Pat es ’s ol e c l ai m on appe al i s t hat t he C om m i ss i onerof t he I nt er nal 1 R even u e Servi ce er red i n not al l ow i n g pa rt i cul ar ded u ct i on s pu rport edl y rel ated to the P a tes’all eg ed cattl e-raisi n g e n terp ri se, w h i ch th eyi n sistw a s a legiti m a te pr o f i t
- s e e ki ng bus i ne s s . The Com m i s s i o ne rv i go r o us l y di s put e s t hi s c o nt e nt i o n, a c k n o w le d g in go n lyth a t a m in o rcle r ic a l e r r o rw a s m a d e b yth e T a xC o u r t in
c o m put i ng t he Pat e s ’2 003 t axl i ab i l i t y f o rt he c o r r e c t i o n o f w hi c h t he g o v e r n m e n t s e e k s lim ite dre m a n d
. II . A n a ly s is T h e C o m m is s io n e r ’ s d e te r m in a tio n o f ta xd e fic ie n c yis p r e s u m p tiv e ly
c o r r e c t . W he n ade f i c i en cy r e s ul t s f

r o m t he di s al l o w anc e o f a de duc t i o n, t he 2 t ax pa ye rha s t he b ur de n o f de m o ns t r at i ng e nt i t l e m e ntt o t he de duc t i o n . The 3 T ax C ou rt ’ s det erm i n ati o n o f a t axp ayer’ s enti t l em en tt o a ded u ct i on i s a q u e s tio n o f fa c t a n dis re v ie w e dfo rcle a re r r o r , a s is th e q u e s tio n o f p r o fit 4
m o t ive . “ The c l e ar e r r o rs t and ar d o f r e vi e w ‘ pr e c l ude s r e ve r s al
. . . unl e s s t he 5 court i s l ef

tw i t h a d e fin ite an d f i rm convi ct i on t h at a m i st ak e ha s been
c o m m it t e d .’” 6 I ti s a xi o m at i c t hati nc o m e i s t ax e d t o t he pe r s o n who e ar ns i t and t hatt he l aw w i l lnot r ecognize att em pted avoidan ce orevasi on by w h i ch the “ f rui t s are Case: 09-60375 Document: 00511022635 Page: 3 Date Filed: 02/08/2010N o. 09- 60375

Lucas v. Earl , 2 8 1 U .S
. 1 1 1 , 1 1 4( 1 9 2 9). 7 Gregor y v. Helvering, 2 9 3U .S
. 4 6 5 , 4 6 9( 1 9 3 5). 8 Moline Pro

ps., I nc. v. C ommissione r , 3 1 9U .S
. 4 3 6 , 4 3 9( 1 9 4 3). 9 See Fed
. R
. App . P
. 2 8 (e). 10 Yohey v. Collins , 98 5 F.2 d 22 2, 2 24-2 5 (5 th Cir. 1 993) (statingth at pro separties are 11 required to cite specifically to the recor d and that ina dequ ately briefed arguments will not be pres erved).

See M cIntosh v. Partri dge , 540F .3d 3 15, 327(5th Cir.200 8) (internalcitations 12 omitte d)
. 4 at t r ibut e d t o a dif

fe r e ntt r e e f

r o m t hat o n w hi c h t he y gr e w . ” Al t ho ugh i t i s t r ue 7 t h at t axp ayers ha ve t h e ri gh tto organ i ze thei r bu si n ess affai rs so as t o m i n i m i ze ta x a tio n , b u s in e s s e n tit ie s th a t a r e cr e a te da s s h a m s o rfic tio n s m e r e lyto a v o id

8 t a xl i a b i l i t ywi l lb e d i s r e g a r d e db yt h e l a w. 9 T h e P ates’bri ef

i s essenti al l y a n arrat ive of fact s p u rport i n g t o est abli sh t h at t h ei r c att l e- rai si n g en t erpri se w as a p rof i t
- seeki n g bu si n ess, enti t l i n g t h em to p a r tic u la rd e d u c tio n s fr o m th e irta x a b le in c o m e in 2 0 0 3 a n d2 0 0 4
. T h is
n a rra tive cov ers m u ch of th e grou n d of th e P a te’ s testi m on y at tri a l , b u t it is
u t t erl y dev oi d of ci t ati on t o t h e recor d. F u rt h erm ore, ou r revi ew of t h e en t i re recor d on app ealdem on st rat es t h at m an y of t h e fact s on w h i ch the P ates’seek t o rel y are not s u pp ort ed therei n . A n d, even t h ou gh w e const rue pro sebr i e fs l i ke t h e P a t e s ’ lib e r a ll y , p a r t ie s a r e n e v e r t h e le s s r e q u ir e dto a s s is tth e c o u r t ’s d e te r m in a tio n b y p o in tin g to fa c tu a l s u p p o r t in th e r e c o r d
. A r g u m e n ts th a t fa il 10 t o do so are deem ed w ai ved ; w e do n otas a m att er of course enl arge t h e rec ord 11 b ey on dtha t w h i ch w a s p rese n ted to t h e tri a lcou rt. 12 Li m i t i ng o urr e vi e w t o t he c o nt e nt s of t he re c o r d on ap pe al , w e c o nc l ude t hatt he Pat e s ’con t en t i o n i s una va i l i ng. N o t hi ng i n t he r e c o r d c r e at e s t he

“ de f i ni t e a nd f

i r m c o nvi c t i o n” t hata m i s t ak e w as m ad e by t he TaxCour t . The P a tes’ow n testi m on y p rov es th a t t h e “P a te Jo i n t V en tu re” an dthe “P a te Case: 09-60375 Document: 00511022635 Page: 4 Date Filed: 02/08/2010N o. 09- 60375

5 A ss oc i at i on” w er e sham enti t i es cr eat ed so l el y t o a voi d orm i ni m i ze t ax l i abi l i t y, an d n ei t h er the 200 3 an d 200 4 ret u rns n or an ythi n g el se i n t h e rec ord sup port t he Pat es ’c ont ent i on th a t t h e ca ttl e-raisi n g e n terp ri se su p p orted the cl ai m ed t ax d e d u ctio n s. T h e re co rd d o e s, h o w e v e r, re flectth a t (1 ) M r . P a te ea rn e dse lfe m p lo y e din c o m e in 2 0 0 3 a n d2 0 0 4 a s a p ip e in s p e c to r , w o r k in ga p p r o x im a te ly 250 days a y earaw ay f r om hom e; ( 2) t hi s i nco m e w as i m pro per l y pas se d t hro ugh th e sh a m en tities on th e P a t e s ’2 0 0 3 a n d2 0 0 4 ta xre tu rn s, a n d(3) th is se lfem pl oyed incom e w as red u ced by ded u ct i on s that w ere not att ribu t able t o cat t l er a i s i n ge x p e n s e s o r t o a n y o t h e r d o c u me n t e db u s i n e s s e x p e n s e . A c c o r d i n g l y , we h ol d t h at t h e T ax C ou rt w as j u st i f i ed i n ( 1) deem i n g t h e “ P ate J o in t V en t u re”
a n d“P a te A s s o c ia tio n ” to b e s h a m s o rf ic tio n s d e s ig n e do n lya s v e h ic le s to a v o id report i n g i n com e an d p aying taxes; ( 2) ref u si n g t o r e c o gn i ze t h e P ate’ s pu rport ed
c a tt le -r a is in ge n te r p r is e a s a b o n a fid e p r o fit- s e e k in gb u s in e s s w h ic h co u ld suppor t incom e de duct i ons f r om M r . Pat e’ s se l f

- em pl oye d i nco m e; and ( 3) di sa l l ow i ng t he Pat es ’c l ai m ed de duct i ons f r om t he c at t l e- r ai si ng ac t ivi t y. O n ap pe al , ho w e ve r , t he go ve r nm e nt , ha s r ai s e d su asp o n tei t s di scovery t h at t h e C om m i ssi on er fa il e d t o accoun tf or an all ow able l egal exp en ses d e d u c tio n o f $ 4 2 5 .0 0 in th e d e fic ie n c yca lc u la tio n fo rth e P a te s ’2 0 0 3 ta x e s . W e ta k e n o p o s itio n o n th is q u e s tio n , b u t w e A F F IR M t h e T a xC o u r t’s ju d g m e n t in
a l lr e s p e c t s e x c e p tf

o rt h e e x c l u s i o n o f

t h a t$ 4 2 5
. 0 0 d e d u c t i o n a n dR EMAND t hatq ue s t i o n t o the TaxCour tf o rt he l i m i t e d p ur po s e s o f ( 1) de t e r m i ni ng w h e th e r th e 2 0 0 3 d ef i ci e n cyer ro n e o u slyex clu d e dth e $ 4 2 5 .00 d e d u ctio n a n d (2), i f s o, r ec al c ul at i ng t he 2003 t ax de f i c i enc y. AF F I RMED AND R EMANDE D. Case: 09-60375 Document: 00511022635 Page: 5 Date Filed: 02/08/2010