Expatriate Owl

A politically-incorrect perspective that does not necessarily tow the party line, on various matters including but not limited to taxation, academia, government and religion.

Friday, October 12, 2007

Horsing Around with Dr. Nora

Yesterday's Tax Court opinions included the matter of Nora E. Keating & Richard L. Shearer v. Commissioner, T.C. Memorandum Opinion 2007-309. Nora is an emergency room physician who absolutely loves horses. Nora and Richard, husband & wife, filed joint income tax returns for years 1996 - 2002, on which they claimed significant losses totaling in excess of $300,000 from Nora's horse breeding activity.

Among the standard fare of the Tax Court are cases where losses are claimed from hobby-type pastimes which lack a significant business (i.e., profit-making) motive. Where losses from such activities exceed the income derived, no deduction is allowed.

I have neither interest nor expertise in horses, and do not tout myself as an expert in the business. Having said this, certain things about Nora's situation evoke my comment:

A. The Tax Court opinion includes a tabular listing of Nora's 20 horses. Of the 20, 6 are geldings purchased by Nora (including Aw Fames Ovation, purchased for $5,000, her most expensive equine acquisition), and 5 are "home-foaled" geldings, that is, geldings actually bred by Nora. As for the remaining 9 horses, two are ponies who were purchased for the purpose of riding. Only 3 of the horses were specifically purchased for breeding purposes.

It is my understanding that a gelding is a castrated horse. If Nora wishes to breed horses, why is she purchasing geldings, and why is she cutting off the beitzim of the horses she actually breeds? This does not seem to be an efficient use of assets.

B. Of even greater concern: "Throughout the years in issue, petitioner worked approximately 60 hours a week as a physician--typically two 24-hour shifts and one 12-hour shift." Hey, isn't this the Libby Zion case all over again? What of the patients who are being treated by a sleep-deprived doctor?

Never mind the horses!! Never mind the income tax returns!! This doctor presents a danger to her patients, on account of her lack of sleep!!

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