Opinion ID: 3050656
Heading Depth: 3
Heading Rank: 1

Heading: Depreciation Deductions from HEH

Text: [13] The Commissioner disallowed in full the depreciation losses, allegedly attributable to depreciating solar water heatbeen too late to litigate the question. “Ordinarily, arguments not timely presented are deemed waived.” Boardman v. Estelle, 957 F.2d 1523, 1535 (9th Cir. 1992). 10 Needless to say, the Commissioner had no opportunity to respond to any such arguments. 16186 SPARKMAN v. CIR ing equipment, that HEH had allocated to Sparkman on his Schedules K-1. The Tax Court agreed, stating that the “only evidence introduced at trial in support of the claimed HEH losses consists of self-serving figures listed in the HEH returns (prepared, signed, and filed by Sparkman less than 3 weeks before trial) . . . , and Sparkman’s returns for the years at issue,” which the Tax Court declined to accept because they were not credible. The only other document in the record cited by Sparkman is a document, produced by HEH and given to HEH’s “beneficiary”-customers, purporting to allocate to them a portion of the cost of the equipment as a tax credit, similar to schemes rejected by the Tax Court in Hvidding, T.C. Memo 2003-151, and Richter, T.C. Memo. 200290. The Tax Court did not commit clear error in declining to accept such a document at face value. [14] Sparkman now contends that, instead of disallowing the losses in full, the Tax Court ought to have approximated the correct amount of the depreciation losses. Sparkman cites Cohan v. Comm’r, 39 F.2d 540 (2d Cir. 1930), to support his contention.11 This circuit’s precedents adopting the Cohan rule, however, are clear that the rule does not obviate the need for some proof of entitlement to a deduction in the first place. The finding of the Tax Court that Sparkman failed to establish such an entitlement eliminates the requirement that the Tax Court estimate what those losses were. See Edelson v. Comm’r, 829 F.2d 828, 831 (9th Cir. 1987) (summarizing Cohan as standing for the proposition that “a court should allow the taxpayer some deductions if the taxpayer proves he is entitled to the deduction but cannot establish the full amount claimed” (emphasis added)); see also Norgaard v. Comm’r, 939 F.2d 874, 879 (9th Cir. 1991) (noting that, 11 In Cohan, the taxpayer, a theater producer, was unable to substantiate his entertainment deductions, and the Commissioner sought to disallow them entirely. The circuit court reversed, ordering that “the Board should make as close an approximation as it can” of the losses to which Cohan was entitled. 39 F.2d at 543. SPARKMAN v. CIR 16187 under the Cohan rule, the trial court “may not be compelled to guess or estimate . . . even though such an estimate, if made, might have been affirmed”). Reviewing the evidence does not give the panel “the definite and firm conviction that a mistake has been committed,” Wolf, 4 F.3d at 712, required to reverse the Tax Court under the clear error standard.