                   T.C. Summary Opinion 2003-6



                     UNITED STATES TAX COURT



      CHARLIE DANIEL TURNER, JR. AND SANDRA LOVELL TURNER,
   Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 13082-99S.               Filed January 24,2003.



     Charlie Daniel Turner, Jr. & Sandra Lovell Turner, pro sese.

     Linda J. Wise, for respondent.



     CARLUZZO, Special Trial Judge:   This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.   Unless otherwise

indicated, subsequent section references are to the Internal

Revenue Code in effect for the years in issue.   The decision to

be entered is not reviewable by any other court, and this opinion

should not be cited as authority.
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     Respondent determined deficiencies in and an addition to

petitioners’ Federal income taxes as follows:

          Year            Deficiency            Sec. 6651(a)(1)

          1994             $10,909                   --
          1995              11,571                 $2,322
          1996               6,828                   --

     The issues for decision are: (1) Whether expenses listed on

Schedule C, Profit or Loss From Business, included with

petitioners’ Federal income tax return for each year in issue

were incurred in an activity for profit; (2) whether income

received and expenses incurred during 1994 by petitioners’

daughter are properly reportable on petitioners’ return for that

year; and (3) whether petitioners had reasonable cause for

failing to file a timely 1995 return.

Background

     Some of the facts have been stipulated and are so found.

Petitioners are husband and wife.    They filed a joint Federal

income tax return for each year in issue.    At the time the

petition was filed, petitioners resided in Ardmore, Alabama.

References to petitioner are to Charlie Daniel Turner.

     Petitioner has a doctorate in aerospace engineering.      At

all relevant times he was employed on a full-time basis as an

aerospace engineer by Nichols Research Corporation (Nichols

Research).   He was required to travel extensively in connection

with this employment.   His traveling expenses, including
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transportation expenses, were paid or reimbursed by his employer.

     During the summer of 1991, several close friends of

petitioners’ son were killed in an automobile accident.

Petitioners’ son was supposed to have been with his friends at

the time, but wasn’t.   In December of that year, petitioners’

residence and much of its contents were destroyed by fire.

These two events had a significant effect on petitioners’ lives

and lifestyle.   Petitioner described the above tragedies as “an

unhappy string of events” that led him and his wife “to the

conclusion that * * * [they] needed to get more out of life

before it was too late.”   Petitioners’ catharsis began with an

“automotive buying spree” that included several “performance”

cars, including a 1965 Mustang and two Firebirds, one for

petitioner and one for his son.1

     Petitioner’s interest in performance cars, especially Ford

Mustangs, led him to open-road racing,2 a form of automobile

racing that he first learned about in a magazine article.

In 1992, petitioner established Turtle Performance, an

unincorporated association, in order to pursue his interests



     1
       See Lawrence, “Mustang Lifestyles: Terminal Velocity”,
Mustang Monthly, 94 (Oct. 1994).
     2
       This is a form of car racing that involves driving over a
90 mile stretch of a public highway that has been closed to
traffic. In the unlimited class, the car that completes the
course in the least amount of time is the winner.
                                - 4 -

in performance automobiles and, apparently, speed.      At first,

petitioner maintained a separate checking account and credit card

account for Turtle Performance; however, by the years in issue,

expenditures attributable to Turtle Performance were paid from or

charged to petitioners’ personal accounts.

     During the years in issue, a typical open-road race event

required an entry fee of $600 (more or less), but there were no

cash prizes for the class winners.      Entrants apparently competed

for trophies and “bragging rights”.      Eventually, petitioner

founded the National Open Road Race Association (NORRA) to

publicize the sport.

     Steeda Autosports (Steeda) is one of several nationally

known after-market performance tuners of Ford automobiles.

Steeda is located in Pompano Beach, Florida, and offers its

products and services to the general public.      In November 1992,

in what is described as an “uncharacteristic surge of

spontaneity”,3 petitioner ordered a 1993 Mustang Cobra from a

Ford dealer, but had the car shipped directly from Ford’s

Dearborn assembly plant to Steeda.      Petitioner intended to

compete in open-road racing with this car and to this end

directed that Steeda make certain modifications to the stock

Mustang.    The modifications were made and sometime during 1993



     3
         See id.
                                - 5 -

the Mustang was delivered to petitioner.   The Mustang was street

legal and used by petitioners for personal purposes, but it was

modified by Steeda pursuant to petitioner’s specifications so

that it could be used to compete in open-road racing.

     Petitioner decided that the value of the Mustang, or

similarly modified Mustangs, depended upon the car’s ability to

perform.    Petitioner’s goal was to set the land speed record for

a street-legal car on a public highway.    To this end, he entered

the Mustang in various open-road racing events during the years

in issue.   At first the events were few and far in between--

twice a year on desert highways in Nevada.   Later, the events

were held three or four times a year on rural highways in Texas

as well as in Nevada.   Petitioner lived in Alabama at the time.

He owned a trailer and tow vehicle (Chevrolet Suburban) capable

of transporting the Mustang, and he either drove or towed his

Mustang to the racing events.   Occasionally, petitioner leased

the Suburban and trailer to others, mostly friends or

acquaintances who used the equipment to transport cars to various

racing or track testing events.   From time to time the location

of a racing event coincided with a business trip that petitioner

was required to make as an employee of Nichols Research.    When

this occurred petitioner was reimbursed for his traveling

expenses by his employer.
                                - 6 -

     Petitioner attempted to generate publicity for his modified

Mustang by writing articles and info-ads for various automobile

periodicals.   Following the years in issue, he offered the

Mustang for sale.   In one advertisement, petitioner indicated

that he had invested $38,000 in the car and would “consider

reasonable [offers]”.   Later, after the examination that led to

this case began, petitioner advertised the car for sale at prices

that varied depending upon the anticipated speed achievements of

the car.   For example, if the car was sold “ready for its next

test run” then the price would be $250,000, but if the car set

the record sought by petitioner, it would be offered for sale at

$1,000,000.    According to an article in the August 1998 edition

of Car and Driver, the current version of a Steeda modified

Mustang (then designated the “Steeda Q”) sold for approximately

$41,000, including the cost of the Mustang and Steeda

modifications.   See Webster, Car and Driver, 60 (Aug. 1998).

     On August 6, 1996, petitioner was seriously injured in a

motorcycle accident.    He was hospitalized until October 15, 1996.

He was unable to walk without assistance until December 31, 1996,

the date of his daughter’s wedding.     He returned to work for

Nichols Research sometime in January 1997.

     In November 1996, shortly after petitioner was released from

the hospital, Mrs. Turner was diagnosed with a serious illness.

She was involved with planning her daughter’s wedding at the
                                 - 7 -

time.   She received medical attention for her illness until the

middle of 1997.

     Petitioners’ 1994 and 1996 joint Federal income tax returns

were timely filed.   Taking into account extensions, their 1995

joint Federal income tax return was due on or before October 15,

1996, but it was not filed until March 25, 1997.    Each return

includes a Schedule C for Turtle Performance.   The following

items are reported on the Schedules C:

     Year              1994              1995      1996

     Income          $15,294        $22,505     $18,060
     Total expense   (59,739)       (73,079)    (56,727)
     deductions

     Net profit       (44,445)      (50,574)    (38,667)
     or (loss)

The income for 1994 is attributable to leasing fees charged for

the use of petitioners’ tow vehicle and trailer.    For the most

part, the incomes reported for 1995 and 1996 consist of travel

expense reimbursements petitioner received from Nichols Research.

Some of the travel expense deductions claimed on the Schedules C

involve those trips when an open-road racing event coincided with

petitioner’s travel obligations as an employee of Nichols

Research.

     On Schedules C included with their Federal income tax

returns from 1992, the year that Turtle Performance was
                                - 8 -

established, through the years in issue, until 1999, petitioners

reported net losses totaling over $405,000 from that activity.

The activity did not generate a profit in any of those years.

     In 1994 petitioners’ daughter was employed to some extent as

a model and actress.    The income and expenses attributable to

petitioners’ daughter’s employment are reported on petitioners’

1994 return.

     The examination of petitioners’ returns for the years in

issue began not later than October 23, 1997.4    In the notice of

deficiency that resulted from the examination of those years

respondent disallowed the loss attributable to Turtle Performance

claimed for each year because, according to respondent, the

activity was not engaged in for profit in any of those years.

For 1994, respondent also determined that petitioners improperly

included their daughter’s income and expenses on their return.

Respondent further determined that petitioners did not have

reasonable cause for failing to file a timely 1995 return.

Discussion

     According to petitioners, Turtle performance is, and was at

all relevant times, a trade or business.    Therefore, petitioners

argue, the expenses and/or losses incurred in that activity are




     4
         The provisions of sec. 7491 are therefore not applicable.
                                - 9 -

deductible under section 162 and/or section 165.5    Respondent

argues that Turtle Performance was not a trade or business during

any of the years in issue because petitioner did not engage in

that activity with the requisite profit objective.    According to

respondent, expenditures attributable to that activity are only

deductible as allowed by section 183.6    For the following




     5
       In general, sec. 162 allows a deduction for all ordinary
and necessary expenses incurred in carrying on a trade or
business. In the case of an individual, sec. 165(c)(1) generally
allows a deduction for any losses incurred in a trade or
business.
     6
         In relevant part, sec. 183 states:

          (a) General Rule.–-In the case of an activity engaged
     in by an individual or an S corporation, if such activity is
     not engaged in for profit, no deduction attributable to such
     activity shall be allowed under this chapter except as
     provided in this section.

          (b) Deductions Allowable.–-In the case of an activity
     not engaged in for profit to which subsection (a) applies,
     there shall be allowed--

                 (1) the deductions which would be allowable under
            this chapter for the taxable year without regard to
            whether or not such activity is engaged in for profit,
            and

                 (2) a deduction equal to the amount of the
            deductions which would be allowable under this chapter
            for the taxable year only if such activity were engaged
            in for profit, but only to the extent that the gross
            income derived from such activity for the taxable year
            exceeds the deductions allowable by reason of paragraph
            (1).
                                                     (continued...)
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reasons, we agree with respondent.

     The term “trade or business” is not precisely defined in the

Internal Revenue Code or the regulations promulgated thereunder;

however, it is well established that in order for an activity to

be considered a taxpayer’s trade or business for purposes

relevant here, the activity must be conducted “with continuity

and regularity” and “the taxpayer’s primary purpose for engaging

in the activity must be for income or profit.”   Commissioner v.

Groetzinger, 480 U.S. 23, 35 (1987).   After careful

consideration, we are not persuaded that petitioner’s primary

purpose for engaging in Turtle Performance was for income or

profit.

     The test of whether a taxpayer conducted an activity for

profit is whether he or she entered into, or continued, the

activity with the actual or honest objective of making a profit.

See Keanini v. Commissioner, 94 T.C. 41, 46 (1990); Dreicer v.

Commissioner, 78 T.C. 642, 644-645 (1982), affd. without


     6
      (...continued)

          (c) Activity Not Engaged In For Profit Defined.–-For
     purposes of this section, the term “activity not engaged in
     for profit” means any activity other than one with respect
     to which deductions are allowable for the taxable year under
     section 162 or under paragraph (1) or (2) of section 212.

We note that for years 1995 and 1996 income reported on the
Schedules C actually includes employee business expense
reimbursements improperly characterized as income from Turtle
Performance.
                              - 11 -

published opinion 702 F.2d 1205 (D.C. Cir. 1983); sec. 1.183-

2(a), Income Tax Regs.   The taxpayer’s profit objective for each

year in which the activity is conducted must be bona fide, taking

into account all of the facts and circumstances.   See Keanini v.

Commissioner, supra at 46; Dreicer v. Commissioner, supra at 645;

Golanty v. Commissioner, 72 T.C. 411, 426 (1979), affd. without

opinion 647 F.2d 170 (9th Cir. 1981); Bessenyey v. Commissioner,

45 T.C. 261, 274 (1965), affd. 379 F.2d 252 (2d Cir. 1967); sec.

1.183-2(a) and (b), Income Tax Regs.   More weight is given to

objective facts than to the taxpayer’s statement of his intent.

See Engdahl v. Commissioner, 72 T.C. 659, 666 (1979); sec. 1.183-

2(a), Income Tax Regs.

     The following factors, which are nonexclusive, are

considered in the determination of whether an activity is engaged

in for profit:   (1) The manner in which the taxpayer carried on

the activity; (2) the expertise of the taxpayer or his or her

advisers; (3) the time and effort expended by the taxpayer in

carrying on the activity; (4) the expectation that assets used in

the activity may appreciate in value; (5) the success of the

taxpayer in carrying on other similar or dissimilar activities;

(6) the taxpayer’s history of income or losses with respect to

the activity; (7) the amount of occasional profits, if any, which

are earned; (8) the financial status of the taxpayer; and (9)

elements of personal pleasure or recreation.   See sec. 1.183-
                              - 12 -

2(b), Income Tax Regs.

     No one factor is determinative in and of itself, and our

conclusion with respect to petitioner’s profit objective does not

depend upon merely counting those factors that suggest the

presence of a profit objective and comparing that number to the

number of factors that indicate the opposite.    See id.

     We see little benefit in specifically discussing each

factor.   Instead, attached as an Appendix to this opinion is the

article from Mustang Monthly, previously cited in this opinion.

The article discusses petitioner’s background, the circumstances

surrounding the acquisition of his modified Mustang, open-road

racing in general, petitioner’s involvements and achievements in

the sport, and to some extent, petitioner’s future plans.      The

article was received into evidence as petitioners’ exhibit and

compels us to reject their contention that Turtle Performance was

a trade or business during the years in issue.

     Petitioners point to the amount of time and money petitioner

has spent in connection with Turtle Performance and argue that

both are indicative of a profit objective.    As we view the

matter, the time that petitioner put into the activity, given his

obvious interest in performance cars, is no more indicative of a

profit objective than a passionate pastime.    Similarly, the money

expended suggests little other than to confirm what is commonly
                              - 13 -

acknowledged; that is, car racing at any level is an expensive

proposition.7   Lastly, giving little weight to petitioner’s offer

to sell the Mustang at prices that increased based upon the

accomplishments achieved, we have serious doubts whether the

value of the Mustang would ever exceed the cumulative losses

incurred by petitioners over the history of Turtle Performance.

It follows that respondent’s adjustments disallowing the net loss

claimed on the Schedule C for Turtle Performance for each year in

issue are sustained.

     Petitioners’ 1994 return also includes a Schedule C

reporting income earned and expenses incurred by their minor

child.   Respondent determined that neither the income nor the

expenses are properly reported on petitioners’ joint return.     We

agree.   In general, amounts received in respect of services

rendered by a child are includable in the child’s income and not

in the income of the child’s parents.   Sec. 73(a).   Furthermore,

expenditures attributable to such income are generally treated as

paid or incurred by the child.   Sec. 73(b).   Respondent’s

adjustments in this regard are therefore sustained.

     Taking into account successive extensions, petitioners’ 1995

joint Federal income tax return was due on or before October 15,


     7
       The late Colin Chapman, founder and guiding force of Lotus
Cars, Ltd., is rumored to have said that he made a small fortune
from automobile racing. The problem, according to Mr. Chapman,
was that when he started racing he had a large fortune.
                              - 14 -

1996, but not filed until March 25, 1997.    See secs. 6072, 6081.

According to petitioners, the addition to tax that would

otherwise result from their failure to file a timely return is

not applicable because the failure was due to reasonable cause,

namely the poor health of each, and not due to willful neglect.

See sec. 6651(a)(1).

     Petitioner was seriously injured in a motorcycle accident

shortly before petitioners’ 1995 return was due.    Furthermore, at

about the same time, Mrs. Turner was diagnosed with and treated

for a life-threatening illness.   We appreciate the severity of

petitioners’ health problems during the relevant time and

recognize that a serious illness can constitute reasonable cause

for the failure to file a timely return.    See, e.g., Fambrough v.

Commissioner, T.C. Memo. 1990-104.     Nevertheless, in this case,

we note that petitioners’ health problems did not prevent them

from performing or maintaining other activities.    For example,

during the period between the due date and filing date,

petitioner returned to work, Mrs. Turner apparently remained

employed, and the wedding of petitioners’ daughter was planned

and took place.   Petitioners obviously had competing demands on

their time around the due date of their 1995 return, and they

were entitled to prioritize those demands in a manner that best

suited their interests.   However, as we noted in Wilkinson v.

Commissioner, T.C. Memo. 1997-410, “a taxpayer’s selective
                             - 15 -

inability to meet his or her tax obligations when he or she can

carry on normal activities does not excuse a late filing.”

Respondent’s imposition of the addition to tax under section

6651(a)(1) for 1995 is sustained.

     Reviewed and adopted as the report of the Small Tax Case

Division.

     To reflect the foregoing,

                                        Decision will be

                                 entered for respondent.
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APPENDIX
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