TAX COURT OPINION

Case: Christi Ann Kinman
Docket Number: 18322-10S
Judge: Thornton
Opinion Type: bench
Filed: 06/17/2011
Pages: 11

UNITED STATES TAX COURT WASHINGTON, DC 20217 CHRISTI ANN KINMAN, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) ) ) ) ) O R D E R Docket No. 18322-10S. 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 transcript of Thornton at Cincinnati, Ohio, on May 24, 2011, containing his oral the trial. findings of fact and opinion rendered at the conclusion of the trial in the above case before Judge Michael B. the pages of the In accordance with the oral findings of fact and opinion, decision will be entered for respondent. (Signed) Michael B. Thornton Judge Dated: Washington, D.C. June 17, 2011 SERVED JUN 21 2011 IN THE UNITED STATES TAX COURT In the matter of: CHRISTI ANN KINMAN, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) ) ) Docket No. 18322-10S ) ) ) ) ) Room 305 U.S. Courthouse 100 East Fifth Street Cincinnati, Ohio Tuesday, May 24, 2011 The above entitled matter came on for bench opinion, pursuant to notice, at 8:47 a.m. BEFORE: HONORABLE MICHAEL B.. THORNTON Judge APPEARANCES: For the Petitioner: (No Appearance . ) For the Respondent: (No Appearance.) 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 P E Q C E E D I N Q S 2 (8:47 a.m.) THE CLERK: Calling Docket No. 18322-10S, Christi Ann Kinman. (Whereupon, a bench opinion was rendered, as follows:) // // // // // // // // // // // // // // // // // // // 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 3 Bench Opinion By Judge Michael B. Thornton May 24, 2011 Christi Ann Kinman v. Commissioner Docket No. 18322-10S THE COURT: The Court has decided to render oral findings of fact and opinion in this case and the following represents the Court's oral findings of fact and opinion. Except as otherwise provided by Rule 152(c) of the Tax Court Rules of Practice and Procedure, the oral findings of fact and opinion shall not be relied upon as precedent. This Bench Opinion is made pursuant to the authority granted by Section 7459 te (b and Rule 152. Section references are to the Internal Revenue Code in effect for the taxable year at issue. All Rule references are to the Tax Court Rules of Practice and Procedure. This case was heard pursuant to the provisions of Section 7463. Pursuant to Section 7463 (b), the decision to be entered is not reviewable by any other court, and this opinion shall not be treated as precedent for any other case. This case was tried on May 23, 2011, in Cincinnati, Ohio. Petitioner Christi Ann Kinman tried her case pro se. Emma Woodward represented 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 Respondent. Respondent determined a $3,283 deficiency in Petitioner's 2007 income tax. The issue is whether Petitioner is entitled to deduct amounts claimed as business expenses in the pursuit of her artistic endeavors. FINDINGS OF FACT For many years Petitioner has pursued her dream of becoming a musical artist. She has written over 50 songs, at least one of which she copyrighted, and has recorded a demo. In 2006 she entered into a recording contract with KC Starr Records but has not earned any money from it. During 2007 she performed without pay for karaoke and open mike events. In 2007 she purchased a ticket on a cruise liner and performed at a talent show on the cruise. She has sung as a backup artist for some well-known artists but without a contract and without pay. In fact, she has never earned any money as a musical artist. Petitioner has also worked on two books but has not yet published one. In 2007 Petitioner was employed for Leland Enterprises, Inc., an apartment management company based in Kissimmee, Florida. She did not earn any money from any other source or activity during 2007. Heritage Reporting Corporation (202) 628-4888 5 On her 2007 Federal income tax return, Petitioner reported wage income of $37,903.44. On Schedule A, she claimed miscellaneous unreimbursed employee expenses totaling $20,928. These claimed expenses were unrelated to Petitioner's employment with Leland Enterprises. By notice of deficiency Respondent disallowed these claimed expenses. OPINION As a threshold matter, we observe that in this proceeding Petitioner does not contend that she incurred any of the expenses at issue in the course of her employment in the property management business, even though on her 2007 income tax return she claimed these expenses as unreimbursed employee expenses. Rather, Petitioner contends that the expenses at issue were incurred in pursuit of her artistic career. Section 162(a) allows deductions for ordinary and necessary expenses paid or incurred in carrying on a trade or business. Generally, no deduction is allowed for personal, living, or family expenses. Section 262. Petitioner has not shown that expenses allegedly incurred in pursuit of her artistic endeavors are ordinary and necessary business expenses. 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 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 6 Generally, under Section 183(a) and (b) individuals are not allowed deductions attributable to an activity "not engaged in for profit" except to the extent of gross income generated by the activity. Section 183 (c) defines an activity "not engaged in for profit" as any activity other than one for which deductions are "allowable under Section 162 or under paragraph (1) or (2) of Section 212." For deductions to be allowed under Section 162 or Section 212(1) or (2), taxpayers must establish that they engaged in an activity with the actual and honest objective of making an economic profit independent of tax savings. See, e.g.,y Antonides v. Commissioner, 91 T.C. 686, 693-694 (1988), affirmed 893 F.2d 656 (4th Cir. 1990). The expectation of profit need not have been reasonable; however, taxpayers must have entered into the activity, or continued with it, with the objective of making a profit. Hulter v. Commissioner, 91 T.C. 371, 393 (1988); Section 1.183-(2) (a), Income Tax Regs. The determination of whether the requisite profit objective exists depends upon all the surrounding facts and circumstances of the case. Golanty v. Commissioner, 72 T.C. 411 (1979), affirmed without published opinion 647 F.2d 170 (9th Circuit 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 7 1981); Section 1.183-(2) (b), Income Tax Regs. Greater weight is to be given to the objective facts than to the taxpayer's mere tatement of intent. Dreicer v. Commissioner, Section 1.183-2(a), Income Tax Regs. Section 1.183-2(b), Income Tax Regs., provides a list of relevant factors to be used in determining whether an activity is engaged in for profit. These factors include: (1) The manner in which the taxpayer carried on the activity; (2) the expertise of the taxpayer or her advisers; (3) the time and effort expended by the taxpayer in carrying on the activity; (4) the expectation that the assets used in the activity may appreciate in value; (5) the success of the taxpayer in carrying on other similar or dissimilar 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 financial status of the taxpayer; and (9) any elements indicating personal pleasure or recreation. No one factor is conclusive. On the basis of a consideration of all these factors, we find that, although Petitioner is dedicated to her art, she did not carry on her artistic endeavors with the objective of earning a profit. She has had no commercial success in artistic 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 8 activities and has earned no income from them. During 2007 her financial security was obtained from her employment in the real estate business. The evidence does not persuade us that Petitioner carried out her artistic pursuits in a businesslike manner. There is no evidence that she made systematic efforts to sell her works and thereby offset current expenses, which medone indication of profit objective in an artist. Petitioner receives pleasure and personal fulfillment through her art. It is clear that Petitioner chooses to pursue it, regardless of whether it is financially profitable. A major distinction between a hobby and a business is that a business will be discontinued when it becomes apparent that it will never show a profit. A hobby is an activity that will be carried on, for reasons of personal satisfaction, regardless of whether it shows a profit. Under this definition, Petitioner's artistic endeavors are a hobby. We agree with Respondent that Petitioner has attempted to deduct many personal expenses, including groceries, clothes, utilities, home supplies, personal grooming, tanning services, pedicures, computer repair, and the like with no real business justification. Section 262(a) prohibits taxpayers 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 9 from taking deductions for expenses that are inherently personal, living or family expenses. Petitioner has also claimed travel expenses without establishing business purposes and without detailed specific documentation which is required under Section 274 (a) for a taxpayer to deduct travel and entertainment expenses. We uphold Respondent's determination disallowing Petitioner's claimed deductions for her artistic endeavors . Decision will be entered for Respondent. This concludes the Court's findings of fact and opinion in this case. (Whereupon, at 8:58 a.m., the bench opinion in the above-entitled matter was concluded.) // // // // // // // // // // // Heritage Reporting Corporation (202) 628-4888 Ján 14 11 08:13a Gars L. Baldwin 513-385-1378 p.1 10 Certificate of Transcriber and Proofreader CASE NAME: Christi Ann Kinman v Commissioner DOCKET NUMBER: 18322-10S We, the undersigned, do hereby certify that the foregoing pages, numbers 1 through 4 , inclusive, are the true, accurate and complete transcript prepared from the tape made by electronic recording by Gary L. Baldwin , on May 24, 2011 before the United States Tax Court at its session in Cincinnati, Ohio , in accordance with the applicable provisions of the current verbatim reporting contract of the.Court, and have verified the accuracy of the transcript by comparing the printed transcript against the verbal recording. { Gary L. Baldwin (Signature of Transcriber) (Print-Transcriber Name) 6/13/2011 (Date) (Signature of Proofreader) (Print-Proofreader Name) é|| |9-0|| (Date) Heritage Reporting Corporation (202) 628-4888