Losantiville Country Club v. Comm'r of Internal Revenue, 906 F.3d 468

Losantiville Country Club is a private 501(c)(7) social club that hosted nonmember events from 2002–2015, generating gross receipts but reporting net losses after allocating indirect operating costs.
The club offset losses from nonmember events against taxable investment (unrelated business) income for 2010–2012, resulting in reported negative unrelated business taxable income and no tax due for those years.
The IRS determined the club did not hold nonmember events with an intent to profit and disallowed Section 162 deductions for those losses, assessing unpaid unrelated business income tax and 20% accuracy-related penalties under I.R.C. § 6662.
Losantiville litigated in Tax Court, arguing that profitability is not the sole test of profit intent and urging use of the nine Section 183 (hobby-loss) factors; Tax Court rejected this and sustained the deficiency and penalties.
On appeal, the Sixth Circuit reviewed legal questions de novo and factual findings for clear error, concluding the Tax Court misread Portland Golf Club as requiring current-year profitability but finding on the record that no other evidence supported an intent to profit.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Losantiville could deduct nonmember-event losses under I.R.C. § 162 by proving intent to profit without showing profitability	Losantiville: Portland Golf Club permits non-profitability years to be overcome by other indicia (e.g., Section 183 factors) showing intent to profit	IRS: Social-club deductions require demonstration that nonmember sales were undertaken with intent to profit; lack of profitability is dispositive here	Court: Portland does not require current-year profit but allows other indicia; however, on this record Losantiville failed to show intent to profit, so deductions disallowed
Whether accuracy-related penalties (§ 6662) were improper because Losantiville reasonably relied on tax professionals or on a novel but plausible legal interpretation	Losantiville: relied on accountants and offered a novel application of Portland Golf Club, so had reasonable cause and good faith	IRS: No objective evidence of competent, relied-upon advice or substantial authority to support the position	Court: Tax Court did not clearly err; petitioner failed to prove objective, good-faith reliance or substantial authority; penalties affirmed

Portland Golf Club v. Comm'r, 497 U.S. 154 (1990) (a 501(c)(7) may offset investment income with nonmember-sale losses only if nonmember sales were undertaken with an intent to profit; intent may be shown without year-by-year profitability)
Comm'r v. Groetzinger, 480 U.S. 23 (1987) (profit motive is central to determining whether an activity is a trade or business under § 162)
Neonatology Assocs., P.A. v. Comm'r, 299 F.3d 221 (3d Cir. 2002) (describes standards for reasonable reliance on tax professionals and limits of return preparer reliance)
Estate of Kluener v. Comm'r, 154 F.3d 630 (6th Cir. 1998) (explains substantial-authority and reasonable-cause standards for avoiding accuracy-related penalties)
Indmar Prods. Co. v. Comm'r, 444 F.3d 771 (6th Cir. 2006) (standard of review: Tax Court's legal conclusions reviewed de novo; factual findings for clear error)