TAX COURT OPINION

Case: Leonard W. Klinkner & Elaine A. Klinkner
Docket Number: 1597-18
Judge: Kerrigan
Opinion Type: bench
Filed: 07/12/2019
Pages: 7

CT UNITED STATES TAX COURT WASHINGTON, DC 20217 Petitioner(s), v. LEONARD W. KLINKNER & ELAINE A. KLINKNER, ) ) ) ) ) Docket No. ) ) ) ) ) COMMISSIONER OF INTERNAL REVENUE, Respondent 1597-18. 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 respondent a copy of the pages of the transcript of trial in the above case before Judge Kathleen Kerrigan at San Francisco, California on June 18, 2019, containing her oral findings of fact and opinion rendered at the conclusion of the trial session at which the case was heard. In accordance with the oral findings of fact and opinion, the Court will order the parties to submit computations under Rule 155. (Signed) Kathleen Kerrigan Judge Dated: Washington, D.C. July 12, 2019 SERVED Jul 15 2019 sench Opinion by Judge Kathleen Kerrigan June 18, 2019 Leonard W. Klinkner & Elaine A. Klinkner v. Commissioner 3 of Internal Revenue Docket No. 1597-18 THE COURT: The Court has decided to render in this case the following as its oral' findings of fact and opinion, which shall not be relied upon as precedent in any other case. This Bench Opinion is made pursuant to 1 2 3 4 5 6 7 8 9 10 the authority granted by section 7459(b) of the Internal 11 Revenue Code, and Rule 152 of the Tax Court Rules of 12 Practice and Procedure. Unless otherwise indicated, all 13 section references are to the Internal Revenue Code in 14 effect for the years in issue, and all Rule references are 15 16 17 18 19 20 21 22 23 24 25 to the Tax Court Rules of Practice and Procedure. Respondent determined deficiencies of $1,968, $1,593, and $1,703 for years 2014, 2015, and 2016 (years in.issue), respectively. After a concession, the issue . I for our consideration is whether petitioners were actively engaged in a trade or business for the years in issue. Trial of this case was conducted on June 18, 2019, in San Francisco, California. Petitioners were represented by petitioner husband and Elizabeth Rodoni represented respondent. Respondent filed a motion to dismiss for lack of 973)406-2250 operati nséescriberulet www.escríberknet 1 2 3 4 prosecution as to petitioner wife. The motion requests that the Court defer entry of decision until the deficiency of petitioner husband is determined. Petitioner husband did not object. The Court granted the 5 motion. 6 7 8 9 10 11 12 The parties' stipulation and supplemental stipulation of facts and exhibits were admitted into evidence. Respondent raised an objection to admitting Exhibit ll-P, petitioner husband's resume. Exhibit ll-P is admitted. Petitioner husband (subsequently referred to as petitioner) testified about his employment summary and respondent had the opportunity to cross examine him about 13 his employment. We find the following facts: 14 15 FINDINGS OF FACT Petitioners resided in California when they 16 timely filed their petition. Petitioner was a plumber by 17 training. He started working as plumber for the union in 18 19 1977. The plumber's union would assign him to various businesses that would send him out to a job. The 20 businesses that the union assigned to him would pay his 21 wages and provide him with a W-2, Wage and Tax Statement. 22 23 24 In 1994, petitioner bought Jade Plumbing. While he was operating Jade Plumbing he was not able to work for the plumber's union due to the union's concerns about 25 conflicts of interest and number of hours worked. In ï973)4D Ú50 bperationseescribers net ww escribersne 5 2013, petitioner decided to work for the union again because of matters pertaining to his pension. At this point he stopped taking jobs for Jade Plumbing. On March 21, 2013, petitioner requested that his insurance agency cancel his business policy because Jade Plumbing was inactive once he returned to working through the plumber's unron. Petitioner worked for the plumber's union from 2013 until approximately the spring of 2015. In December 1 2 3 4 5 6 7 8 9 10 2015, he applied for and received insurance for Jade 11 Plumbing with an effective date of December 29, 2015. 12 Petitioner applied to reactivate Jade Plumbing's license 13 14 in December 2015. Petitioner suffered from severe shoulder pain 15 starting around the beginning of 2015. He had two 16 17 shoulder surgeries in 2016. Petitioner deducted expenses on Schedules C, 18 Profit or Loss From Business, for the years in issue. 19 None of these Schedule C returns showed gross receipts. 20 Respondent recharacterized a portion of the 21 Schedule C deductions as allowable Schedule A deductions, 22 Miscellaneous Itemized Deductions. 23 24 OPINION A taxpayer may not fully deduct expenses of an 25 activity under sections 162 if the activity is not engaged 1 2 3 4 5 6 7 8 9 in for profit. Sec. 183(a). Pursuant to section 183(a), if an activity is not engaged in for profit, no deduction attributable to that activity is allowed except to the extent provided by section 183(b). Section 183(b) generally limits deductions for an activity that is not engaged in for profit to the amount of income that the activity generates. See also sec. 1.183-2(a), Income Tax Regs. To be engaged in a trade or business within the 10 meaning of section 162(a), an individual taxpayer must be 11 12 involved in the activity with continuity and regularity and with the primary purpose of realizing income or 13 profit. Commissioner v. Groetzinger, 480 U.S. 23 (1987). 14 For 2014 and 2015, petitioner was still employed by the 15 plumber's union. While he was working for the union, he 16 was not allowed to work for Jade Plumbing. Therefore, we 17 conclude that petitioner was not engaged in a trade or 18 19 20 21 business for those years. Deciding whether a taxpayer is carrying on a trade or business requires an examination of all the facts and circumstances. Id. at 36. A taxpayer must conduct 22 the activity with the requisite profit motive or intent 23 for the activity to be considered a trade or business. 24 25 See id. at 35-36; see also Churchman v. Commissioner, 68 T.C. 696, 701 (1977). The taxpayer generally bears the $3)466.1250 operaÁns@escribersäet wwkescribers-net 1 2 3 4 5 6 7 8 9 burden of proving that the requisite profit objective existed. Westbrook v. Commissioner, 68 F.3d 868, 876 (5th Cir. 1995), aff'g T.C. Memo. 1993-634; see also Rule 142(a). At the end of 2015 petitioner took steps to operate Jade elumbing as a business for 2016. se testified that he planned on working and that the only reason that he did not have gross receipts in 2016 was due to his shoulder injury which required two surgeries. 10 Petitioner incurred expenses in 2016 associated with Jade 11 Plumbing. Petitioner's intent was to operate Jade 12 Plumbing as a profitable business. We conclude that 13 petitioner was self-employed and providing services with Jade Plumbing for 2016. A decision will be entered under Rule 155. This concludes the Court's oral Findings of Fact and Opinion in this case. (Whereupon, at 5:03 p.m., the above-entitled matter was concluded.) 14 15 16 17 18 19 20 21 22 23 24 25 973) 406-2250 [operations@escreersmel) www.esabeisa CERTIFICATE OF TRANSCRIBER AND PROOFREADER 8 CASE NAME: Leonard W. Klinkner & Elaine A. Klinkner v. Commissioner DOCKET NO.: 1597-18 we, the undersigned, do hereby certify that the foregoing pages, numbers 1 through 8 inclusive, are the true, accurate and complete transcript prepared from the verbal recording made by electronic recording by Deborah Gonzalez on June 18, 2019 before the United States Tax 1 2 3 4 5 6 7 8 9 10 Court at its session in San Francisco, CA, in accordance 11 with the applicable provisions of the current verbatim 12 13 reporting contract of the Court and have verified the accuracy of the transcript by comparing the typewritten 14 transcript against the verbal recording. 15 16 17 18 19 20 21 23 24 25 . . . . Meribeth Ashley, CET-507 Transcriber 6/24/19 Date Stacey Post Proofreader 6/25/19 Date cribers 97.3)406-2250 operati meiescribers.net vavw.escribersinet