1980 Tax Ct. Memo LEXIS 288 | Tax Ct. | 1980
MEMORANDUM FINDINGS OF FACT AND OPINION
HALL,
FINDINGS OF FACT
Some of the facts have been stipulated and are found accordingly.
Nicholas Doman is the executor of the Estate of Estelle Lanier. Mr. Doman resided in New York, New York when he filed the petition in this case.
Mrs. Lanier was born in New1980 Tax Ct. Memo LEXIS 288">*290 York City in 1881 and lived there until 1967. In 1967 she moved to Stevenson, Maryland; she lived there until her death in 1972.
Throughout her life, Mrs. Lanier was a lover of wire fox terriers. At various times she kept wire fox terriers in her New York City apartment as pets and had "showings" of these dogs. She was a member of various wire fox terrier associations.
Sometime prior to 1969 Mrs. Lanier and Eve Ballich met as a result of their joint love of wire fox terriers. That same year Mrs. Ballich and Mrs. Lanier entered into a joint venture to operate a dog kennel. There was no written partnership agreement. At the time the joint venture was formed, Mrs. Lanier was 86 years old and Mrs. Ballich was approximately 60 years old.
In 1967 Mrs. Lanier moved from her New York City apartment to Stevenson, Maryland, where she rented a home from Dr. Nicholas Ballich, Eve Ballich's former husband. This house was within 150 yards of the kennel used in the joint venture.
Mrs. Lanier did not work at the kennel and was not active in the management of the joint venture. On the other hand, Mrs. Ballich worked at the kennel normally ten hours a day caring for and training the dogs.1980 Tax Ct. Memo LEXIS 288">*291 Mrs. Ballich alone handled the payment of expenses for the joint venture. She co-mingled the financial affairs of the joint venture with her individual business and personal funds without the knowledge of Mrs. Lanier or any agent of Mrs. Lanier.
Between January 1971 and June 1972, Mrs. Lanier made payments to Mrs. Ballich in connection with the joint venture as follows:
| 1971 Date | Amount |
| 1/12/71 | $ 851.00 |
| 2/10/71 | 1,054.50 |
| 3/10/71 | 1,250.50 |
| 4/12/71 | 1,027.50 |
| 5/12/71 | 1,240.50 |
| 6/15/71 | 1,025.25 |
| 7/15/71 | 1,013.50 |
| 8/27/71 | 1,276.00 |
| 9/22/71 | 642.50 |
| 10/07/71 | 1,339.50 |
| 11/08/71 | 1,155.00 |
| 12/16/71 | 1,097.50 |
| 1972 Date | Amount |
| 1/10/72 | $ 905.00 |
| 2/02/72 | 1,149.00 |
| 3/07/72 | 905.00 |
| 4/06/72 | 1,593.50 |
| 5/08/72 | 1,380.50 |
| 6/12/72 | 1,166.00 |
| $ 7,099.00 |
The record does not disclose whether she made any additional payments.
By written agreement dated July 11, 1972, effective as of June 1, 1972, the joint venture was terminated. The termination agreement read as follows:
Agreement made this 11th day of July 1972 between Mrs. Eve Ballich of Stevenson, Md. (hereafter "Ballich") and Mrs. Estelle H. Lanier of Stevenson, Md. (hereafter "Lanier") whereas1980 Tax Ct. Memo LEXIS 288">*292 Ballich and Lanier have been joint venturers in the ownership and operation of a kennel and the dogs therein; and whereas the parties wish to terminate their relationship with regard to any and all matters pertaining to the kennel, the dogs and other items.
Therefore it is hereby agreed as follows:
1. Lanier waives all her rights and claims to the dogs as of June 1st, 1972.
2. Lanier will transfer to Ballich all her right, title and interest to the dogs owned by her individually and located at the kennel as well as all her right, title and interest in the dogs jointly owned by them.
3. Lanier will execute such documents as are necessary to carry out the above provisions of their agreement.
4. In consideration for the above, Ballich waives any and all claims she or the joint venture has, may have, or ever had against Lanier for the care and maintenance of Lanier's dogs and the dogs of the joint venture and any claims pertaining to them or on any account.
5. Ballich releases Lanier without condition and without exception from any liability or obligation to her or to any one on account of any liability contracted or permitted by Ballich and promises to hold Lanier1980 Tax Ct. Memo LEXIS 288">*293 harmless from claims of others with regard to any matter pertaining to the kennel, the dogs, or otherwise.
6. Ballich will execute such documents as are necessary to carry out the provisions of this agreement and when requested to do so will execute a general release to Lanier.
In witness whereof the parties have executed this agreement on the date set forth above.
Partnership income tax returns (Form 1065) were filed for all years until the joint venture was terminated on May 31, 1972. These returns show income and expenses as follows:
| Gross | |||
| Year | Income | Expenses | Loss |
| 1971 | $5,078.15 | $18,196.03 | $13,117.88 |
| 1972 | 2,203.25 | 13,147.30 | 10,944.05 |
Mrs. Lanier was unmarried and had no dependents during the taxable years 1971 and 1972. She was the beneficiary of several trusts which provided her with enough income to sustain her life style without working. Mrs. Lanier had never been involved in any occupation or in the operation of any business.
On her income tax returns for 1971 and 1972, Mrs. Lanier reported income apart from the joint venture as follows:
| 1971 | 1972 | |
| Dividends | $31,483.11 | $ 9,315.00 |
| Interest | 1,031.94 | 0 |
| Income from life | ||
| interest in two trusts | 3,651.61 | 2,882.00 |
| Total | $36,166.66 | $12,197.00 |
1980 Tax Ct. Memo LEXIS 288">*294 Mrs. Lanier claimed a partnership loss of $6,558.94 in 1971 and $5,472.03 in 1972 from the Lanier-Ballich joint venture. In his notice of deficiency, respondent disallowed the losses claimed for both years. Respondent determined that the losses were not allowable because the joint venture activity was not engaged in for profit.
OPINION
The sole issue for decision is whether respondent properly disallowed, under section 183, 1 Estelle Lanier's losses from the Lanier-Ballich joint venture, a dog kennel operation, on the basis that the activity was not engaged in for profit during 1971 and 1972. 2
Section 183(a) provides that if an individual engages in an activity and if that activity is not engaged in for profit, then no deduction attributable to that activity shall be allowed except as otherwise provided under section 183(b). Section 183(c) defines an activity not engaged in for profit as "any activity other than one with respect to which deductions1980 Tax Ct. Memo LEXIS 288">*295 are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." The taxpayer's expectation of profit need not be reasonable, but she must establish that she continued her activity with a bona fide intention and good faith expectation of making a profit.
The issue is one of fact to be resolved on the basis1980 Tax Ct. Memo LEXIS 288">*296 of all the facts and circumstances.
We must first decide whether to apply section 183 at the partner level or at the partnership level. The application of section 183 at the partnership level is indicated by the principle that a partner is viewed as engaged in the business of the partnership.
Petitioner contends that Mrs. Lanier's share of the1980 Tax Ct. Memo LEXIS 288">*297 joint venture's losses are properly deductible on the ground that the kennel operation constituted an activity engaged in for profit and not a hobby. On the other hand, it is respondent's position that the joint venture was not an activity engaged in for profit, and we agree.
In
Accordingly, we hold that the activities of the joint venture were not engaged in for profit in 1971 or 1972 and Mrs. Lanier is not entitled to deduct her share of the losses for those years.