TAX COURT OPINION

Case: Matthew D. Stoll
Docket Number: 12504-11S
Judge: Vasquez
Opinion Type: bench
Filed: 01/26/2012
Pages: 6

UNITED STATES TAX COURT WASHINGTON, DC 20217 RMM MATTHEW D. STOLL, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 12504-11S. ) ) ) ) ) ) ) ) ) ORD E R Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit herewith to petitioner and to respondent a copy of the pages of the transcript of the trial in the above case before Judge Juan F. Vasquez at Fresno, California, on January 11, 2012, containing his oral findings of fact and opinion rendered at the conclusion of the trial. In accordance with the oral findings of fact and opinion, decision will be entered for petitioner. (Signed) Juan F. Vasquez Judge Dated. Washington, D.C. January 26, 2012 SERVED Jan 27 2012 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Bench Opiniori by Judge Juan F. Vasquez January ,11, 2012 Matthëw D. Stoll v. Comnììssioner Docket No. 12504-11S . TI4E COURT: The Court hás decided to render oral findings of fact and op nion in this case, and. the following represents tihe Court's öral findings of fact and opinion. The oral findings of fadt and opiñïon shall .not be relied upon·as precedent in any other case. This is the case of Matthew D. Stoll,- Petitioner, versus Commissioner of nternal Revenue Service, Respondent, Docket No. 12504-11S his proceeding was conducted as a small tax case., pursuant to the provisions of section 7463 and Rules 170 through 1 5. This bench opinion is made pursuant to the authori y granted by section 7459 (b) and Rule 152 . All section references. are to the Internal Revenue Code as in ef fect for the year in issue, and all rule references are to the T x Court Rules of Practice & Procedure . Respondent- determined a déficiency against Petitioner for his 2006 taxable year in the amount of $7,575, and an accuracy-related penalty uhder section 6662 (a) pr4 in the 23. amount of $1,515. The i sue for décision is whether 24 25 . Petitiöner is s entitled t o a Schedule C total expense deduction in the amoùnt of $30,220 in the taxable year 2006. Heritage Reporting Corporation (202) 628.-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 .19 20 21 22 23 24 25 4 At the beginning of the trial, Respondent conceded that the substantiation tef--t4a,, of . the various categories of expenses that comprise the $30,220 claimed on the Schedule C, is not in issue. Respondent also conceded the section 6662 (a) accuracy-related penalty. . Certain facts have been stipulated by the parties. The stipulation of facts is adopted by this reference. At the time the petition was filed,. Petitioner was a resident of Lemoore, Cal-ifornia. In general, Respondent's determinations are entitled to a presumption of correctness, and Petitioner bears the burden of rebùtting that presumption by a preponderance of the ,evidence. Welch v. Helvering, 290 U,S 111 (1933); Rule 142(a) Unless Petitioner meets the requirements of section 7491(a). Petitioner has not claimed the.benefits of section 7491(a), and therefore the burden of proof remains with Petitioner. . On his 2006 form 1040, 0.4 individual tax return, Schedule E, Petitioner reported rental income and expenses related to four rental properties that he owned and rented. Petitioner also claimedion Schedule C $30,220 of expenses related to a real estate management business called Stratus Consulting & Investing (Stratus), LLC. Petitioner did not report any gross receipts related to this Schedule C Heritage Reporting Corporation (202) 628-4888 5 1. business. 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Respondent asserts that.Petitioner was not in the business of managing real estate.properties for customers in 2006. At trial, Respondent asserted that Petitioner's $30,220 of Schedule C expenses were.startup expenses that were amortizable under section 195. Respondent's pretrial .memorandum asserts that Petitioner reported no income on his Schedule C and 'had no.clients in taxable year 2006.' . During the year in issue, Petitioner was a full- time pilot for the navy. Petitioner credibly testified how in between several military deployments from May 2002 to July 2011 he started and grew his Schedule C business of managing real estate properties. In 2004, although he was deployed most of the..year, his lawyer established Stratus as a limited-liability company in the state of California. In 2005 Petitioner obtained an employer identification number for Stratus from the Internal Revenue Service. Petitioner testified that he was able to obtain customers during 2006. By the end of 2006 Petitioner had 10 customers whose properties he was managing. _ Petitioner credibly testified how his arrangements with these 10 customers was that during the first contract period, which usually lasted 12 months, he would not charge any fee for managing their property But after that initial period he would charge them 10 percent of the gross monthly rent. Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11. 12 13 14 15 16 17 18 19 20 21 22 23 24 25 From these original 10 customers, Petitioner started receiving management fees in 2007 and 2008. From zero management fees in !2006, Petitioner's management fees have grown to $59,254 and $98,032 for 2010 and 2011, respectively. Petitioner presently has over 140 customers whose real estate he manages. Eight of those customers were customers of his during the year in issue,_ 2006. The other two original customers' properties have been sold. During 2006, Petitioner rented office space and advertised in the yellow pages and in his local newspaper. He purchased errors-and-omissions Insurance. Although he did not get a real estate broker's license until April 2007, he operated his real estate management company under a business license from the City of Hanford, California. The Supreme Court has held that to be considered to carrying on a trade or business, the taxpayer must be involved in the activitý with continuity and regularity for the purpose of making income or profit. See Commissioner v. Groetzinger, 480 U,R23, 35 (1987); see also Roumi v. Commissioner, IC,Memo 2012-2. Based on the. ecord before us and Petitioner's testimony, which we find credible we find that Petitioner was in the trade or business of managing real estate, as set forth in his.Schedule C for 2006. Accordingly, we do not sustain Respondent's determination, and Petitioner is Heritage Reporting Corporation (202) 628-4888 7 1 2 3 4 5 6 7 8 entitled to deduct in 2006. the $30, 220 claimed on his Schedule C. To reflect the foregoing, decision will be entered for Petitioner. The foregoing represents the Court's oral f indings of f act and opinion in this case . This concludes this case. And this concludes this session of the US. Tax Court in Fresno, California. e 9 (Whereupon, at 10:37 a.m., the bench opinion in 10 11 12 13 14 the above-entitled matter was concluded.) // // // // . 15 // // // // //. // // 16 17 18 19 20 21 22 23 24 25 Heritage Reporting Corporation (202) 628-4888