Iversen v. Comm'r
103 T.C.M. 1128
Tax Ct.2012Background
- Petitioners Alfred and Brenda Iversen filed joint 2005 and 2006 federal returns with deficiencies and accuracy-related penalties under §6662.
- Stirrup Ranch, LLC, a Colorado cattle ranch, was formed in 1998, fully owned by petitioners.
- Ranch spans 42,000 acres (owned and leased) with cattle and horses; the onsite manager supervised operations.
- Petitioners largely resided in Minnesota during 2005–2006 while Mr. Iversen ran PMT Corp. from Minnesota, not on the ranch site.
- PMT flights to the ranch (NetJets) were paid by PMT; Iversen made multiple trips to Colorado with limited on-site days.
- Respondent disallowed Stirrup Ranch losses claimed on petitioners’ returns, prompting the Tax Court review.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether petitioners materially participated in Stirrup Ranch under §469. | Iversen was the real day-to-day manager and directed activities. | Onsite ranch manager performed management; petitioners lacked sufficient participation. | No; petitioners did not materially participate. |
| Whether the §6662 penalties should be sustained given the disallowed losses. | Petitioners relied in good faith on their accountant’s advice. | Disallowance due to improper deductions; penalties appropriate. | Penalties not sustained. |
Key Cases Cited
- Goshorn v. Commissioner, T.C. Memo. 1993-578 (Tax Court, 1993) (absence of day-to-day records does not validate conjecture on participation)