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Tax Issues
Brown v. Commissioner, 1992 W.L. 155446, 64 T.C.M. (CCH) 20, T.C.M. (P-H) 92,379 (U.S. Tax Ct. 1992).
Claimed deductions and losses from standardbred breeding programs disallowed because programs were structured only as tax shelters to create artificial deductions and losses.
Calumet Farm v. Revenue Cabinet, 793 S.W.2d 830 (Ky. App. 1990).
Calumet Farm conveyed several "lifetime breeding rights" in the stallion Alydar. The Kentucky Court of Appeals ruled that lifetime breeding rights to a stallion did not qualify as interests in a horse exempt from Kentucky sales tax.
Daley v. Commissioner, 1992 WL 295162, 71 T.C.M. (CCH) 3147, T.C.M. (P-H) 96,259 (U.S. Tax Ct. 1996).
Surgeon engaged in horse activity never experienced a net profit. Tax Court dissallowed deductions as hobby losses.
Estate of Kluener v. Comm'r, 1996 WL 677504, 72 T.C.M. (CCH) 1326 (U.S. Tax Ct. 1996).
Taxpayer transfered horses to affiliated company, which sold them at auction for a substantial gain, which was offset by the affiliated company's net operating loss. Tax Court ruled that, in reality, taxpayer was the seller of the horses, and thus the gains could not be offset by the NOLs of the affiliated company. The court ruled that the transfer to the affiliate was merely for tax avoidance because it was customary for horses to be sold at open auction, not privately.
Harry F. Guggenheim, 46 T.C. 559 (1966).
Purchaser of racehorse later syndicated racehorse as a stallion, selling several shares. Gain on sale of shares treated as capital gain, but contested by IRS. Tax Court ruled that stallion shares constituted interests in the stallion and not mere breeding rights, and thus gain could be treated as capital gain.
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Jack Kent Cooke Inc. v. United States, 116 F.3d 1473 (4th Cir. 1997).
In 1984, Jack Kent Cooke, Inc., purchased equine and other assets from the Gluck Estate, the owner of Elmendorf Farm. At the time of the sale, Cooke believed that the horses were owned by a corporate subsidiary of the Gluck Estate. When Cooke later discovered its error, it backdated its books to reflect that understanding by creating a backdated transfer to the subsidiary, but the IRS disallowed deductions for depreciation during the backdated period and the court of appeals affirmed.
LiButti v. United States, 894 F. Supp. 589 (N.D.N.Y. 1995), rev'd, 107 F.2d 110 (2d Cir. 1997).
Horse owned by daughter of delinquent taxpayer was levied on by IRS under a claim that she held the horse as nominee for her father. The district court ruled that the horse was not subject to IRS levy imposed on horse because the evidence was insufficient that she was her father's nominee and because, as an individual, she could not be considered to be her father's alter ego.
On appeal, the Eleventh Circuit reversed this descision and remanded the case to the district court to reconsider certain evidence, including whether an adverse inference should be drawn against the horse owner as a result of the refusal of her father to testify, invoking his privilege under the Fifth Amendment.
Osteen v. Commissioner, 62 F.2d 356 (11th Cir. 1995).
Bank executive attempted to deduct losses from Persheron horse venture. Disallowance of deductions of horse-breeding operation affirmed by Tax Court and Court of Appeals because taxpayer failed to show that the operation was for profit.
Wardram v. Commissioner, 59 T.C.M. (PH) par 90,121 (1990).
Taxpayer who owned seven show horses and was parent of Olympic rider, held not to be engaged in a business.
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