Court Opinion

ID: 9905985
Source: CourtListenerOpinion
Date Created: 2023-11-30 18:01:07.332578+00
Date Added: 2024-06-11T09:24:03.065132
License: Public Domain

NOT FOR PUBLICATION                           FILED
                    UNITED STATES COURT OF APPEALS                       NOV 30 2023
                                                                      MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                           FOR THE NINTH CIRCUIT

MICHAEL J. ROGERSON,                            No.    22-70209

                Petitioner-Appellant,           IRS No. 5848-20

 v.
                                                MEMORANDUM*
COMMISSIONER OF INTERNAL
REVENUE,

                Respondent-Appellee.

                     On Petition for Review of an Order of the
                              United States Tax Court

                     Argued and Submitted November 8, 2023
                              Pasadena, California

Before: WALLACE, W. FLETCHER, and OWENS, Circuit Judges.

      Michael Rogerson appeals from the tax court’s denial of his petition, and

motion for reconsideration, to overturn the Commissioner of Internal Revenue’s

(“Commissioner”) determination that Rogerson’s federal income taxes for 2014,

2015, and 2016 were deficient under section 469 of the Internal Revenue Code.1

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
      1
             The Internal Revenue Code is codified at Title 26 of the United States
Code, and the attendant Treasury Regulations are codified at Title 26 of the Code
of Federal Regulations. We cite to the “I.R.C.” and “Treas. Reg.,” respectively.
We have jurisdiction pursuant to 26 U.S.C. § 7482(a).

      “[U]nderlying factual determinations are reviewed for clear error, but the

correctness of the legal standards applied by the Tax Court, and the application of

the legal standards to the facts found, are reviewed de novo.” Sacks v. Comm’r, 69

F.3d 982, 986 (9th Cir. 1995); see also Reddam v. Comm’r, 755 F.3d 1051, 1059

(9th Cir. 2014).

      As the parties are familiar with the factual and procedural history of this

case, we need not recount it here. We affirm.

      1. The tax court did not err in finding that Rogerson materially participated

in Rogerson Aircraft Equipment Group (“RAEG”) in 2014, 2015, and 2016 under

I.R.C. § 469(h)(1). “Congress enacted Section 469 of the Internal Revenue Code

to prevent taxpayers from applying losses from rental properties and other passive

business activities to offset and shelter non-passive income, such as wages.”

Beecher v. Comm’r, 481 F.3d 717, 721 (9th Cir. 2007). Generally, “[t]he term

‘passive activity’ means any activity—(A) which involves the conduct of any trade

or business, and (B) in which the taxpayer does not materially participate.” I.R.C.

§ 469(c)(1). A taxpayer’s participation in an activity is “material” if his

involvement in the operations of the activity is regular, continuous, and substantial.

Id. § 469(h)(1).

                                          2
      The tax court made extensive factual findings regarding Rogerson’s activity

as Chief Executive Officer of RAEG during the relevant years. Based on the

undisputed factual record of Rogerson’s involvement in RAEG, the tax court found

that Rogerson materially participated in RAEG in 2014, 2015, and 2016 under

I.R.C. § 469(h)(1). Rogerson’s primary rebuttal to the tax court’s finding is that

RAEG “did not require much of [Rogerson’s] time.” However, the tax court

rejected this argument in its reasoning:

      Mr. Rogerson’s ability to respond to detailed inquiries so quickly
      shows his detailed knowledge of every aspect of the business.
      Indeed, many of Mr. Rogerson’s communications reflect first-hand
      experience with RAEG’s employees, customers, and products that
      extends far beyond what could have been acquired by a passive
      investor.

Moreover, I.R.C. § 469(h) does not impose a minimal-hours requirement to

find that a taxpayer’s participation is material, only that the participation be

regular, continuous, and substantial. “Under the clearly erroneous standard,

if the tax court’s account of the evidence is plausible in light of the record

viewed in its entirety, the court of appeals may not reverse it even though

convinced that had it been sitting as the trier of fact, it would have weighed

the evidence differently.” Wolf v. Comm’r, 4 F.3d 709, 712–13 (9th Cir. 1993)

(cleaned up). Accordingly, we affirm the tax court’s finding that Rogerson

                                           3
materially participated in RAEG for 2014, 2015, and 2016 under I.R.C.

§ 469(h)(1).2

      2. The tax court did not err in concluding that Rogerson’s activity

related to his two yachts was a rental activity under I.R.C. § 469 and Temp.

Treas. Reg. § 1.469-1T(e)(3)(i). I.R.C. § 469(c)(2) provides that “the term

‘passive activity’ includes any rental activity.”3 In turn, “[t]he term ‘rental

activity’ means any activity where payments are principally for the use of

tangible property.” I.R.C. § 469(j)(8).

      The temporary regulations have added that an activity is generally a “rental

activity” when “tangible property held in connection with the activity is used by

customers or held for use by customers” and the gross income (or expected gross

income) attributable to the activity represents “amounts paid or to be paid

principally for the use of such tangible property.” Temp. Treas. Reg. § 1.469-

      2
         Since we affirm the tax court’s finding that Rogerson materially
participated in RAEG based on the text of I.R.C. § 469, we do not reach
Rogerson’s additional arguments regarding the validity, constitutionality, or the tax
court’s application of the 1988 temporary regulations, Temp. Treas. Reg. § 1.469-
5T(a), which were not dispositive to the tax court’s ruling. See Fireman’s Fund
Ins. Co. v. Int’l Mkt. Place, 773 F.2d 1068, 1070 (9th Cir. 1985) (“[A]n appellate
court typically will address only those arguments that are necessary to reach its
result.”).
      3
         Section 469(c)(2) references an exception for real estate rental activity not
at issue here. See I.R.C. § 469(c)(7).

                                           4
1T(e)(3)(i). The subsequent provision outlines several exceptions related to short-

term rentals. Id. § 1.469-1T(e)(3)(ii).

      The tax court found Rogerson’s challenge to the validity of Temp. Treas.

Reg. §1.469-1T untimely because he raised it for the first time in his motion for

reconsideration. Similarly, we hold that Rogerson waived his challenge to the

validity of Temp. Treas. Reg. § 1.469-1T by failing to raise it until after trial and

an opinion on the merits. See Ramona Equip. Rental, Inc. ex rel. U.S. v. Carolina

Cas. Ins. Co., 755 F.3d 1063, 1070 (9th Cir. 2014) (holding an argument first

raised in a post-judgment motion waived); Beech Aircraft Corp. v. United States,

51 F.3d 834, 841 (9th Cir. 1995) (per curiam) (same). Furthermore, as the tax

court acknowledged in its denial of the motion for reconsideration, “without the

temporary regulations in the picture, Mr. Rogerson’s yacht activity would be

covered by the general rule of the statute [I.R.C. § 469(j)(8)] and not be subject to

any exception.”

      Rogerson next argues that the tax court applied the temporary regulation’s

general provision, Temp. Treas. Reg. § 1.469-1T(e)(3)(i), and the short-term rental

exceptions, id. § 1.469-1T(e)(3)(ii), inconsistently. Specifically, Rogerson

contends that the tax court erred in determining that the yachts were a rental

activity under the general provision based on Rogerson’s plan to charter them but

                                           5
considered actual charter activity (or lack thereof) to determine that neither short-

term rental exception applied.

       The tax court’s application of the temporary regulation tracks the

regulation’s language. The general provision’s definition of rental activity

includes the holding of tangible property for future use by customers but, as the

exceptions are written, actual activity, not intention, is relevant to their

applicability. Compare Temp. Treas. Reg. § 1.469-1T(e)(3)(i)(A)–(B) (“[A]n

activity is a rental activity . . . if . . . tangible property held in connection with the

activity is . . . held for use by customers . . . [and] expected gross income from the

conduct of the activity will represent[] amounts paid or to be paid principally for

the use of such tangible property[.]” (emphasis added)) with id. § 1.469-

1T(e)(3)(ii)(A)–(B) (“[A]n activity involving the use of tangible property is not a

rental activity . . . if . . . (A) The average period of customer use for such property

is seven days or less; (B) The average period of customer use for such property is

30 days or less, and significant personal services . . . are provided by or on behalf

of the owner of the property in connection with making the property available for

use by customers[.]”). As the tax court held, “[w]ithout any customer use, it is

impossible to establish (as required by the regulations) the average period of

customer use for the yachts.”

                                             6
      We hold that Rogerson’s argument that the yacht activity was not a rental

activity as defined by I.R.C. § 469(j)(8) because it was not “principally” for the use

of tangible property waived. See Cold Mountain v. Garber, 375 F.3d 884, 891 (9th

Cir. 2004), as amended (Aug. 9, 2004) (“In general, we do not consider an issue

raised for the first time on appeal.”).4 Furthermore, the record on this issue is

undeveloped as Rogerson requested no findings of facts or produced any evidence

about the kinds of services that crew members could or would provide to

customers. Greisen v. Hanken, 925 F.3d 1097, 1115 (9th Cir. 2019) (holding that

an argument was “inappropriate to review” where “the record is undeveloped”).

      AFFIRMED.

      4
        Although we have discretion to hear previously unconsidered arguments
under three recognized exceptions, none are applicable here. See Cold Mountain,
375 F.3d at 891 (recognizing three exceptions: (1) review is necessary to prevent a
miscarriage of justice or to preserve the integrity of the judicial process; (2) when a
new issue arises while appeal is pending because of a change in the law; or (3) the
issue presented is purely one of law and either does not depend on the factual
record developed below, or the pertinent record has been fully developed).

                                           7