                                 T.C. Memo. 2018-8



                         UNITED STATES TAX COURT



                      JOY FORD, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket Nos. 8575-16, 18605-16.                 Filed January 25, 2018.



      Brett R. Carter, for petitioner.

      Rebecca Dance Harris, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      FOLEY, Judge: After concessions the issues for decision are whether

petitioner engaged in her music club for profit, whether petitioner is entitled to net
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[*2] operating loss (NOL) deductions, and whether petitioner is liable for section

6662(a) accuracy-related penalties relating to negligence.1

                                FINDINGS OF FACT

      Petitioner, a former recording artist, has devoted most of her life to

performing and promoting country music. During 2012, 2013, and 2014 (years in

issue) she owned the Bell Cove Club (Bell Cove), a small lakeside music venue in

Hendersonville, Tennessee. In the late 1980s petitioner and her late husband,

Sherman, an accomplished music producer and record company owner, purchased

Bell Cove for $500,000.2 They wanted Bell Cove to become a venue where

songwriters could have their songs performed for talent scouts, agents, and record

producers. Many well-known artists have performed at Bell Cove, and it is known

for furthering the careers of emerging songwriters.

      During the years in issue Bell Cove featured live country music on Friday

and Saturday nights. Petitioner selected the performing artists, devoted most of

her time to Bell Cove, and paid all of its expenses. Petitioner charged a $5

admission fee and a nominal amount for snacks and beverages and received annual


      1
      Unless otherwise indicated, all section references are to the Internal
Revenue Code relating to the years in issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
      2
          In 2015 Bell Cove was appraised at $838,900.
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[*3] gross receipts of $17,006, $14,156, and $13,581 relating to 2012, 2013, and

2014, respectively.3 Bell Cove’s expenses, which petitioner paid in cash or from

her personal checking account, consistently exceeded its revenue. Petitioner’s

standard $500 payment to performers invariably exceeded the amount she received

from admission fees and snack and beverage sales. In addition, petitioner’s 2012,

2013, and 2014 expenses relating to taxes, liability insurance, utilities, repairs,

license fees, and other miscellaneous expenses totaled $37,332, $75,779, and

$92,769, respectively. Petitioner maintained incomplete handwritten ledgers and

sporadically retained receipts relating to Bell Cove’s expenses. Her records,

however, bore no relationship to the income and expenses reported on her returns.

      Petitioner considered opportunities to make Bell Cove profitable. She met

with a television producer to discuss a Bell Cove television show and with

business experts who advised her to stem the club’s chronic losses by converting it

into a seafood restaurant. The television show meetings did not advance beyond

the discussion stage, and she rejected the business advice.

      Petitioner, the beneficiary of three trusts established by Sherman and owner

of a brokerage account, received trust distributions of $184,848, $182,922, and

$189,993 and capital gain income of $66,002, $43,730, and $6,725 relating to

      3
          Petitioner charged more on New Year’s Eve and other special occasions.
                                         -4-

[*4] 2012, 2013, and 2014, respectively. Petitioner reported losses relating to Bell

Cove on her timely filed 2012, 2013, and 2014 income tax returns in the amounts

of $39,285, $74,120, and $96,893, respectively.4 She also reported on her 2012

and 2013 returns NOL deductions of $83,389 and $38,545, respectively.

      In a January 14, 2016, notice of deficiency relating to 2012 and 2013

respondent determined that petitioner did not operate Bell Cove for profit, had

failed to substantiate the NOL deductions claimed on her returns, and was liable

for section 6662(a) accuracy-related penalties relating to negligence. In a May

26, 2016, notice of deficiency relating to 2014 respondent disallowed $96,893 of

expense deductions for lack of substantiation and determined a section 6662(a)

accuracy-related penalty relating to negligence. On April 12 and August 23, 2016,

petitioner, while residing in Hendersonville, Tennessee, timely filed petitions

relating to the notices of deficiency. On October 7, 2016, respondent filed his

answer to petitioner’s second petition and asserted, alternatively, that petitioner’s

2014 expense deductions should be disallowed because she did not intend to profit

from Bell Cove.


      4
        Petitioner, on her 2008 through 2014 income tax returns, reported losses
totaling $420,253 (i.e., losses of $34,889, $67,249, $66,016, $41,801, $39,285,
$74,120, and $96,893 relating to 2008, 2009, 2010, 2011, 2012, 2013, and 2014,
respectively).
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[*5]                                  OPINION

       Section 183(b) limits the deductions relating to an activity not engaged in

for profit.5 In short, petitioner did not have the requisite intent to make a profit

and thus may not deduct the losses in dispute.6 She had no expertise in club

ownership, maintained inadequate records, disregarded expert business advice,

nonchalantly accepted Bell Cove’s perpetual losses, and made no attempt to

reduce expenses, increase revenue, or improve Bell Cove’s overall performance.7

See Golanty v. Commissioner, 72 T.C. 411, 430 (1979), aff’d without published

opinion, 647 F.2d 170 (9th Cir. 1981); sec. 1.183-2(b)(1), (2), (6), Income Tax

Regs. Owning Bell Cove elevated petitioner’s status in the country music

community, allowed her to further the careers of young performers, offered her

weekly opportunities to interact with country music fans, and satiated her love for



       5
       Sec. 1.183-2(b), Income Tax Regs., sets forth nine nonexclusive factors
that guide courts examining a taxpayer’s profit motive.
       6
        Petitioner has the burden of proof relating to an issue unless she introduces
credible evidence with respect to that issue, and respondent has the burden of
proof relating to issues raised in the answer. See sec. 7491(a); Rule 142(a). Our
conclusions, however, are based on a preponderance of the evidence, and thus the
allocation of the burden of proof is immaterial. See Martin Ice Cream Co. v.
Commissioner, 110 T.C. 189, 210 n.16 (1998).
       7
      Further, Bell Cove’s $420,253 of accumulated losses exceeded its
$383,900 of appreciation. See sec. 1.183-2(b)(4), Income Tax Regs.
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[*6] promoting country music. Petitioner earnestly devoted time and energy to

Bell Cove but was primarily motivated by personal pleasure, not profit, and simply

used the club’s losses to offset her trust and capital gain income. See Bessenyey v.

Commissioner, 45 T.C. 261, 275 (1965), aff’d, 379 F.2d 252 (2d Cir. 1967); sec.

1.183-2(b)(3), (8), (9), Income Tax Regs.

      We also sustain respondent’s disallowance of NOL deductions claimed on

petitioner’s 2012 and 2013 tax returns. Petitioner did not substantiate the

deductions, identify the years in which they originated, or address them at trial or

in her posttrial brief. See sec. 172(c); Rule 151; United States v. Olympic Radio

& Television, 349 U.S. 232, 235 (1955). We do not, however, sustain the section

6662(a) accuracy-related penalties relating to negligence for the years in issue.

Respondent failed to present any evidence that the penalties were “personally

approved (in writing) by the immediate supervisor of the individual making such

determination.” See sec. 6751(b)(1); Chai v. Commissioner, 851 F.3d 190, 221

(2d Cir. 2017), aff’g in part, rev’g in part T.C. Memo. 2015-42; Graev v.

Commissioner, 149 T.C. ___, ___ (slip op. at 14) (Dec. 20, 2017). Accordingly,

he did not meet his burden of production, and petitioner is not liable for the

determined penalties. See sec. 7491(c); Graev v. Commissioner, 149 T.C. at ___

(slip op. at 14-15).
                                       -7-

[*7] Contentions we have not addressed are irrelevant, moot, or meritless.

      To reflect the foregoing,


                                                   Appropriate decisions will be

                                             entered.
