Raymond Price, III, et al v. Commissioner of Internal Reven

Filing

NOT PRECEDENTIAL OPINION Coram: MCKEE, Chief Judge, SMITH and HARDIMAN, Circuit Judges. Total Pages: 5. Judge: SMITH Authoring.

Case: 15-2196

Document: 003112225741

Page: 1

Date Filed: 03/07/2016

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 15-2196
_____________
RAYMOND PRICE, III;
LYNN M. PRICE,
Appellants
v.
COMMISSIONER OF INTERNAL REVENUE
_____________

On Appeal from the United States Tax Court
Nos. 1:13-4301; 1:13-8470
Submitted Pursuant to Third Circuit L.A.R. 34.1(a)
March 3, 2016
Before: McKEE, Chief Judge, SMITH, and HARDIMAN, Circuit Judges
(Filed: March 7, 2016)
_____________________
OPINION
_____________________
SMITH, Circuit Judge.
In a comprehensive memorandum opinion dated December 16, 2014, the



This disposition is not an opinion of the full court and pursuant to I.O.P. 5.7 does
not constitute binding precedent.

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United States Tax Court upheld, as explained therein, the tax deficiencies
determined by the Commissioner of the Internal Revenue Service for taxable years
2009 through 2011 against appellants. This timely appeal followed.1 Appellants
contend that the Tax Court erred in finding (1) that their horse farm and
automobile dealership undertakings were not a single activity, and (2) that the
horse farm undertaking was not conducted for profit. We will affirm for the
reasons stated below and for the reasons articulated by the Tax Court in its
December 16, 2014, memorandum opinion.
“While we conduct plenary review of the Tax Court’s legal conclusions, we
review its factual findings, including its ultimate finding as to the economic
substance of a transaction, for clear error.” Crispin v. Comm’r, 708 F.3d 507, 514
(3d Cir. 2013) (quoting ACM P’ship v. Comm’r, 157 F.3d 231, 245 (3d Cir. 1998)).
“The Commissioner’s deficiency determination is entitled to a presumption of
correctness and . . . the burden of production as well as the ultimate burden of
persuasion is placed on the taxpayer.” Id. (quoting Anastasato v. Comm’r, 794
F.2d 884, 887 (3d Cir. 1986)).

The taxpayer must “prov[e] entitlement to a

claimed deduction by a preponderance of the evidence.” Blodgett v. Comm’r, 394
F.3d 1030, 1035 (8th Cir. 2005); Tax Court Rule 142(a). This burden may shift

1

The Tax Court had jurisdiction pursuant to I.R.C. §§ 6213(a), 6214, and 7442. We have
jurisdiction over final orders of the Tax Court pursuant to I.R.C. § 7482(a).
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back to the Commissioner if the taxpayer introduces credible evidence with respect
to any relevant factual issue and meets other conditions, including maintaining
required records. I.R.C. § 7491(a); Blodgett, 394 F.3d at 1035.
Treasury

Regulation

1.183-1(d)(1)

states

that

“[g]enerally,

the

Commissioner will accept the characterization by the taxpayer of several
undertakings either as a single activity or as separate activities.” Such deference to
the taxpayer will not be given, however, “when it appears that his characterization
is artificial and cannot be reasonably supported under the facts and circumstances
of the case.” Id. The regulation provides several factors to be considered in
determining whether two undertakings are part of the same activity. As a general
rule, “all the facts and circumstances of the case must be taken into account.” Id.
However, “the most significant facts and circumstances in making this
determination are the degree of organizational and economic interrelationship of
various undertakings, the business purpose which is (or might be) served by
carrying on the various undertakings separately or together in a trade or business or
in an investment setting, and the similarity of various undertakings.” Id.
In addition to the factors explicitly listed in Treasury Regulation 1.1831(d)(1), courts consider other factors in determining whether the taxpayer’s
characterization is reasonable. These factors are:

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(a) [w]hether the undertakings are conducted at the same place;
(b) whether the undertakings were part of the taxpayer’s efforts
to find sources of revenue from his or her land; (c) whether the
undertakings were formed as separate businesses; (d) whether
one undertaking benefited from the other; (e) whether the
taxpayer used one undertaking to advertise the other; (f) the
degree to which the undertakings shared management; (g) the
degree to which one caretaker oversaw the assets of both
undertakings; (h) whether the taxpayer used the same
accountant for the undertakings; and (i) the degree to which the
undertakings shared books or records.
Mitchell v. Comm’r, 92 T.C.M. (CCH) 17, *4 (2006). The Tax Court thoroughly
analyzed both the regulation’s enumerated factors and the Mitchell factors, and its
determination that appellants’ horse farm and automobile dealership undertakings
were not part of the same activity is not clearly erroneous.
Appellants have also failed to show that the horse farm undertaking was
conducted with a profit motive. Treasury Regulation 1.183-2(b) enumerates nine
non-exclusive factors to be considered in determining whether an activity is
conducted for profit: (1) the manner in which the taxpayer carries on the activity;
(2) the expertise of the taxpayer or his advisors; (3) the time and effort expended
by the taxpayer in carrying on the activity; (4) the expectation that 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 were
earned; (8) the financial status of the taxpayer; and (9) elements of personal
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pleasure or recreation. Again, “[n]o one factor is determinative in making this
determination,” and all facts and circumstances are to be taken into account. 26
C.F.R. § 1.183-2(b). Again, the Tax Court thoroughly analyzed these factors and
did not commit clear error in determining that the horse farm undertaking was not
conducted with a profit motive.
For the reasons stated herein, and for the reasons stated in the Tax Court’s
December 16, 2014, memorandum opinion, we will affirm the order of the Tax
Court.

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