TAX COURT OPINION

Case: Jeffrey Lynn Rogers & Maureen McAllister
Docket Number: 7828-13S
Judge: Goeke
Opinion Type: bench
Filed: 12/08/2014
Pages: 11

SEC UNITED STATES TAX COURT WASHINGTON, DC 20217 JEFFREY LYNN ROGERS & MAUREEN MCALLISTER, Petitioner(s), v. ) ) ) ) ) ) Docket No. 7828-13S. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ORDER 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 petitioners and to respondent a copy of the pages of the transcript of the trial in the above case before Judge Joseph Robert Goeke at Louisville, Kentucky, on November 21, 2014 containing his oral findings of fact and opinion rendered at the trial session at which the case was heard. In accordance with the oral findings of fact and opinion, a decision will be entered under Rule 155. (Signed) Joseph Robert Goeke Judge Dated: Washington, D.C. December 8, 2014 SERVED Dec 09 2014 . Capital Reposting Company 1 2 Bench Ó nibn by Judge eph- Robert Goeke. NbeeñÜ r 2 1 2èl 4 efhey Lpññ Rogers & 4. Mahreen MeÉLlisser 5 Dotket eNo. 7 828s-13S 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22. 23 24 25 ~the Coürt has decided to render Oral Findings of Fact and Opinion in this cas#, and the fo¾lowing represents the Court' s Oral Findings of Fact and Opinion. The Oral Findings of Fact- and Opinion shall not be relied upon as precedent in any other case. This opinion is rendered pursuant to Internal Revenue 2Code Section 7459 (b) and the Tax Court Roles of Practice and Procedure. Hereinafter réferences to sections are to the Internal Revenue Code, aád rule re.ferences are tó the Tax Court Rules of Practiée and Procedure. . This case was heard pursuant to the provisions of Section 7463 in effect when the petition was filed. Pursuant to Section 7463(b) the decisión to be .entered is not reviewable by any other Court. This case is a deficiency ca·se where the Rgspóndent i sued a not ice of deficiëncy, to the Petitioner a d Petitiéner tiniely fi®e§ ke petitign 866.488.DEPO Capita1ReportingCompany.com Capital Reporting Company 1 2 wi.th th s iCourt, thus triggerfng odr jurisdictían. At, the time the3 petition was filed 3 Retitioners perá regidents of Kentucky.. 4 5 6 The nbtice of deficiency determined deficiencies in, incoïne tax for 2009 and 2010 in the amounts of $12, 820 and $14, 329 respectively. The 7 Pet;itig íers had previously timely fil.ed jo,int federal 8 9 10 11 12 13 income. -ax returns for both of the years in question. During the. years in question Petitioner Jeffrey Rogers worked full time as a Louisville firefighter, and at the time of trial Petitioner. Jeffrey Rogers was a Captain in the Louisville Fire Department. Hereinafter he will be referred to. as 14 Captain .Rogers. 15 16 17 18 19 20 21 22 During 20.09 Captain Rogers worked a total of 2,49.3 and one-half hours at the Louisville Fire Department. During 2010 Captain Rogers worked a total o 2,560 and a half hours at the fire department. During both years in question the Petit:toners owned five rental roperties for which they claimed expenses and reported income on Schedule 23 . E of their joint federal income tax returns. 24 25 During both years in question Captain Rogers Liaintained an I-phone calendar on which he 866A88.DEPO CapitalRépo¾#ingCompany.com Capital Reporting Company 5 record d mileage with respect to work he performed on the re tal properties. In preparation of trial Câptain Rogers referenge§ this I-phone gagnda¼ind . other documents s.uch as receipts he had maintained for th rëntal properties, to reconstruct the amount of tim he actually spent working on the rental properties. . , The parties have stipulated the amount of time Captain Rogers estimated based upon this 1 2 4 5 6 7 8 9 10 methodology. Captain Rogers testified credibly at 11 12 13 .14 15 16 17 18 19 20 21 22 23 24. 25 trial, but admitted that the amounts he reflected based upon his preparation for trial, as having been spent working on the rental properties, were estima es. He estimated the following amounts for 2009: With respect to the Stonefield Way property, 184 hoars. With respect to the. Anthony Place propercy, 371 and a half hours. With respect to the Floyd otreet property, 809 and a half hours. With resp.ect to the property on Eastern Parkway, 883 hours. And with respect to the Seelbach property, 592 an$ a half hours. For 2.010 his estimates for the. same respec;ive p§ pperties were 412+and a .quart.e.r houps, 198 an three-qµarters hdugs, 758 and a quarter 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company I 1 . 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 hours, 6 7 and a half hourst and 6.48 and three- sluarSys høups. These figures represent totals for the two years of 2821 hours för 2009 and 2313 h¢urs for 2010. During the year.s in question Captain Rogers and his ife were both empDoyed full time., and they reported total wage income of $165, 734 for 2A09 and $187,287 for 2010. .... The losses reflected. on Schedu¼e E of their joint fe eral income tax returns for the years 2009 and 2010 respectively were $40, 585 and, $42, 418. In addition to the disallowance of these losses, he notice of deficiency also makes two other determinations. For 2009 the notice of deficiency . asserts he underreporting of interest .income in the amount of $:269 and for 2010 the notice of deficiency includes underreported dividend income of $593. Captain Rogers, who app.eared and testásfied 19. at trial, did not contest either one of these 20 21 22 . adjustme ats; and we find that the Petitioners have conceded these two adjustments. Regarding the rent,a1 real estate activity, 23 Section 469(a (1) ( ) generally disallows passive 24 25 aptiyi4y lossps A passive- aggivity ¼s defisned as the amoü t by which the aggregate losses from all 866A88hDEPO www.CapitalReportingCompany.com alÉeporting Ompany ..phssive. aniùifie's Àbt a yed exóë'éd the aggr cjàte airicame rom al assivêAdbî$itiies fMk sùëh yeaid Stetdön 4.69(i-) grávides taxpayers say dejìuct up to. $2 000 in passive activity losses aattribùtáb]ie to tental real estate activitïes. Hewever, there is a phase,-out based upon the income .of the axpayers. e . @n the present 40tuition the phase-out eliinirial es any possibility' that the Petitioners'would be able to deduct the $25, 000 in either 2009 or 2010. Therefore, in order to sustain the deductions in questior.. Petitioners must qualify for one of the exceptions to the passive activity loss role df Section 469. In analyzing this issue we first determine who has the burden of proof. Generally in cases before c.ur Court Petitioners bear the burden of proof pursuant to Section 7491(a). Petitioners have not maintained that this bytden should be shifted pursuent to cërtain pr yis òQg ppøv ded5 is Sep)p;i.on 7493(a} and we find: that Petitioners bear the bufden of progf n the present nattet. The exception which Would allow the (cid:16)042 1 1 2 4 5 6 7 B 10 11 12 13 14 15 16 17 18 1 20 21 22 2-3 24 26 Redge r4 Ap4edugt tAe expenses glaimed on their 866A88»EFO wwwgapitalR¢portingCompany.com Capital Reporting Company 8 . 1 2 3 4 5 6 7 8 9 10 1 11 12 13 14 15 16 Schedule 3' s fóp the years 2009 and 201kö are based upon an a falysis of .whetWer or of the 'Pëtitionersi at least performed óver one-half of their total personal services during the taxable year in a real estate trade or ausiness, in which they materially participated, Section 459(c) (7) . In the case of a joint .repurn.. as stated, only one of the spouses niust satisfy this requirement, Section 4 69 (c) (7) (B) . If the taxpayers can demonstrate they qualify under the exception in Section 469(c) (7) (B), their activities are treated as a trade or business and the loss.es claimed on their joint returns would be allo.wable. Treas. Reg. Section 1.469-9(e) (1). There" s a tiered analysis involved. First we must determine whether Captain Rogers materially =17 participated for purposes of each of the five 18 19 properties, since there was no election to consolidate the activities for purposes of the ,20 material participation test provided by Section 21 22 23 24 469 (h) (1) · We. reference the regulations with regard to the mat e¥ial participation test. Section 1.469- 5(T) (a) of the Treasury Regulations provides seven . 25 speci£ìc áys in which a taxpayer ma.y be treat.ed as, 866.488 DEPO www.Capita1ReportihgCompany com 9 mètérialley participat;ing. 2 . We fidi On the redøsdn for us Ahat C@tgin 3 Ro Øs_ ha(dmüateriallyopartió(cid:0)541pate4isn each f the five tproperties for both of the years based upon 5 s;everal of the. provisions, of the regul3atìïon. Heï 6. pärticjpated in the activity as· the primary person or 7 the .only person involved.iq performing the duties 8 with respe.ct to the five properties, and his 9 participation exceeded 10.0 hours for each of the five .10 propert ies fo.r both of the y,ears 11 12 13 14. 15 16 17 1.8 19 2Q 21 22 Therefore, he meets the material particjpation test for 2each of the properties 6 However, that does not end our analysis-. We must also determine whether in total Captain Rogers material participation for each of the years exceededï the amount of time he spent as a firefichter. Otherwise, he would fail the portion of the tee t that requires that at least one-half of a person' s personal services be spent with respect to the trade or business of the real estate .acti.vity. Sectior 469(.c) (7). (B) (i) . With respect to.·this- test we referenge 23 Captair Rog.ers' testimony and. the logs, which were 25 Figst wp note that based gppn the evidence 866A88.BEPO .CapitalRepôrtiggCo pany.co apitäl hportihg Cor spany 10 1 2 in the record an i ..Captain Rogers' testimony,., it is clear he performed substantial and detailed 3 maintenance and repair activities on the rental 4 S 6 7 8 9 pboperties. lt is also cl.ear. these activities· were übry time consumiqq. The diffi&ülty is that many. af thes est-îmates which Captain Rogersi made were based upôn lump sum amounts of as much as 16 Tours in a given dap. This in itself would not be an impediment to 10 Captain Rogerst or the Petitioners position, except 11 12 13 14 15 16 17 18 19 that some of the activities associ ted with these large amounts of time do not appea to be such that they would supp.ort the length of time Captain Rogers has associated with them in his es :imate, which was stipulated by the parties. For instance, his estima es for grass cutting activity and for the time apent organizing his work gaçage appear to be inflated. We acknowledge that Captain Rogers had a ÍO difficult task in eistimating these hours, and that he 21 22 2.3 24 25 did it by his o.wn admission after the fact. And we generally find that he did spend a substantial amount of time in the activities, so we are left with the dil.emma to determine how much.of the estimated hours he spgnt .in , eaöh year we agtually. ind were engaged 866.488 DEPO www.Capita1ReportingContpany.com apital Reporting Company . 11 in. the 5ëa estate activÉtiess ..ba·sed upon his £éstimony and ..our previeüs analysts thvit some of the eetimâtes were- inflat d Re be%gge a .fgír analysis is to dipequpt t!he hours Captain Gogers claiméd byiten percent. This would mean .that for thenyear 2009 we would flyrd that Cappa n Rogers spent roughly 2540 hours in thë real estatu activity, and for the year 2010 he spent roughly 2561 hours in the real estate activity, het, For 2010 the hours would e. 2447 hours as opposed to the C.o.ur-tis 2561 hours. The 2561 hours is the amount of time Captain Rogers spent working as a firefighter. So for the year 2010 our revised estimate of his activities in the real estate 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 . 17 activity are less than the time he spent as a 18 19 20 2 22 23 24 2 fire.fighter, and h.e fails the tes.t of providing over ,one-half o his persorial service time in the real es.tate act ity.. However,. fog .2009, where we found. that his revised real estäte time was 2540 hours, his s ipuyted (cid:0)540ïmeas a firef¼cthter was, 24 6 hours; and, therefore, for 2009 he4aes qpalify 4ar the ercapj;ion to the paséi e 1.oss, rule, and the Retitioners' 866.488.DEPO avw CapitalReportingCompänpcom (cid:16)254apitaineportingCornpany 12 1 2 3, 4 5 6 7 8 claimed losse.s for the. real estate activities in 2009 .ar.e allowable. So to summarize, the. Peti ioners are ,allowed the real estate. expenses fo (cid:0)575409.and they are not allowed the real estate exp nses for 2014, based upon the Court' s Finding of F ct and application of the law to those Fin ings of Fact. As previously stated, becàuse of the 9 Pe.titioners' concession, there are ther adjustments in both years in question that must be taken into account in the computations that wo ld be presented to the Court. Therefore, a Rule 155 computation is required with respect to both the years in question. This concludes the Court' s Oral Findings of Fact and Opinion in this case. (Whereupon, at 9119 a.m., the above- entitled matter was concluded.) 10 11 12 13 14 15 16 17 18 19 20 21 22 23 25 866.488.BEPO y apitalReportingCom any+com