                       T.C. Memo. 2000-182



                     UNITED STATES TAX COURT



          TOMMY W. AND PAMELA L. BUSBEE, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 2968-98.                       Filed June 14, 2000.



     William R. Cousins III, for petitioners.

     Alvin A. Ohm, for respondent.


                       MEMORANDUM OPINION


     GOLDBERG, Special Trial Judge:   Respondent determined

deficiencies in petitioners' 1993, 1994, and 1995 Federal income

taxes of $4,736, $5,999, and $4,263, respectively.    Unless

otherwise indicated, section references are to the Internal

Revenue Code in effect for the years in issue.

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

The stipulation of facts and the attached exhibits are
                                 - 2 -

incorporated herein by this reference.   At the time that the

petition was filed, petitioners resided in Midland, Texas.

Petitioners are husband and wife.    References to petitioner are

to Tommy W. Busbee.

     The issue to be decided is whether petitioners’ fishing

activity constituted an activity engaged in for profit pursuant

to section 183 for the taxable years in issue.

     During the years in issue, petitioner was employed full time

as a safety representative for Parker and Parsley.   Petitioner

wife was also employed full time and worked as a receiving and

shipping clerk for Sam’s Club.

     In the late 1980's, petitioners began investigating several

bass fishing tournament organizations in order to see whether

hosting bass fishing tournaments was an activity in which they

could earn income for their eventual retirement.1

     In the course of their inquiry, petitioners spoke with Tommy

Taylor (Mr. Taylor), the president of the Couples Association of

Sport Tournaments (CAST).   CAST, a sole proprietorship operated

by Mr. Taylor, organized and hosted bass fishing tournaments




     1
          Petitioners first began bass fishing around 1978, and
petitioner has been a member of several recreational bass fishing
organizations over the past several years. He has also served as
the vice president of the High Sky Bass Club and as a board
member of the Permian Basin Black Bass Invitational and of Texas
Black Bass Unlimited.
                                 - 3 -

since 1984 and is the oldest and largest couples bass fishing

circuit in Texas.

     CAST is organized into several regions, each with a regional

director.   Each CAST region hosts its own bass fishing

tournaments during the summer.    The CAST tournament season

culminates in the Classic Tournament, in which certain members of

the various CAST regions compete against each other.2

     Petitioners decided to become involved with CAST in 1991

because it was an established bass fishing tournament

organization with a good reputation.     Further, petitioners

believed that CAST’s reputation would more easily attract

members, and therefore generate more income than other tournament

organizations.    Shortly after joining CAST, petitioner was made

the director of the newly created western region, which included

Midland, Texas.

     As a director, petitioner is responsible for organizing and

hosting regional fishing tournaments and his responsibilities

include securing local permits, contacting local chambers of

commerce, and arranging for local tournament lodging.

Petitioner’s duties as a director also include recruiting local

CAST members.




     2
          The Classic is the final tournament of the year and is
open to CAST members from all regions who have earned a minimum
number of points.
                               - 4 -

     CAST directors do not have a contractual agreement with Mr.

Taylor, but they are permitted to use the CAST name in operating

their respective regions.   Directors generate income by

collecting membership fees and by hosting regional tournaments

and are responsible for all expenses incurred in their

activities.

     Since the western region was new and did not have any

members, petitioners recruited new members in their spare time.

Petitioners printed up fliers and business cards and distributed

them on weekends and evenings during fishing-related events.3

Petitioners also recruited new CAST members by renting booths at

local boat shows, posting CAST fliers at marinas, and speaking to

bass fishing clubs.

     CAST also helped directors with regional recruitment by

advertising in and contributing articles to Texas bass fishing

magazines such as Honey Hole and Our Inland Fisheries.     The

advertisements and articles promoted upcoming CAST tournaments

and publicized the names of companies sponsoring the tournaments.

In addition, CAST created and maintained its own website as a way

of advertising both its tournaments and corporate sponsors on the

Internet.




     3
          Petitioners distributed about 400 to 500 business cards
annually. The business cards also listed the dates and places of
CAST tournaments on the back.
                                 - 5 -

         Over time, petitioners successfully recruited new members

for the western region and began to organize and host several

regional tournaments.     During the taxable years in issue,

petitioners hosted six annual tournaments with about 30 to 40

couples participating in each tournament.

     Petitioner wife also contributed to the fishing activity by

helping her husband recruit members and promote and organize

tournaments, and by maintaining monthly financial and membership

records.     Petitioners’ fishing activity financial records

included detailed information on monthly activity expenses,

including lodging and meal expenses.     Petitioner wife also

maintained a separate checking account for the fishing activity,

kept lists of western regional membership, and sent out a

tournament newsletter to members and sponsors in an effort to

retain participating members.     Petitioners’ efforts to retain and

recruit members are very important to the conduct of the fishing

activity because of the fee structure of CAST.

     Petitioners charge an annual couple membership fee in the

amount of $35, of which they keep $3 and forward the remaining

$32 to Mr. Taylor.     In addition, petitioners also charge a fee in

the amount of $55 per tournament to member couples who fish in

regional tournaments.4    Petitioners keep $8 of the tournament fee

and forward $11 to Mr. Taylor: $2 as a “cast fee” and $9 to be


     4
             Tournament fees were later raised to $75 per couple.
                                 - 6 -

added to the prize for the annual Classic Tournament.5

Petitioners award the remaining $36 as tournament prizes in the

regional tournament in which it is collected: $5 of that amount

is awarded to the couple catching the largest bass, and $31 is

allocated to a fund for general tournament prizes.     Petitioner

wife prepares an expense report for Mr. Taylor at the end of each

tournament.

     During the years in issue, petitioners routinely awarded

regional tournament prizes of approximately $300 to $400.     CAST,

itself, awarded an annual prize of approximately $14,000 during

the yearend Classic Tournament.6

     During the time petitioner has worked as western region

director, CAST has grown from three to eight regions with more

than 400 member couples, of whom 38 couples are members of

petitioner’s western region.

     In addition, CAST tournaments have also begun to attract

several nationally recognized corporate sponsors, including

Ranger Boats, Mercury Marine, Continental Batteries, Santone Lure

Company, and Terminator lures.     In 1995, Ranger Boats, one of

CAST’s corporate sponsors, began providing CAST with fishing


     5
          Member couples also pay $135 to compete in the annual
Classic Tournament.
     6
          The top prize is usually based on a percentage of all
tournament fees collected by CAST. In 1995, however, the top
prize was a Ranger fishing boat and trailer provided by Ranger
Boats and valued at approximately $35,000.
                                 - 7 -

boats and trailers.7    Pursuant to the agreement, CAST uses a

specified number of new Ranger boats for 1 year and then trades

the boats for newer models.8

     Various local businesses near tournament sites are also

beginning to sponsor CAST tournaments by providing free services

for directors, such as meals and lodging, as a way of attracting

future business from CAST.     Various municipalities have also paid

subsidies to CAST in order to attract the annual Classic

Tournament to their community.

     CAST has also expanded its activities beyond merely holding

regional tournaments and was scheduled to participate as one of

the qualifying circuits9 for the Millennium Invitational

Tournament (Millennium Tournament) in November 1999.    The top

prize in the Millennium Tournament, sponsored by Ranger Boats, is

valued at $1 million.

     In 1996, Mr. Taylor made petitioner a Supervising Director

of CAST.    As CAST’s only Supervising Director, petitioner is

entitled to receive part of the fees collected by the regional




     7
            By 1997, Ranger Boats provided CAST with five boats and
trailers.    The boats are valued between $32,000 and $39,000 each.
     8
          CAST agreed to pay freight costs and keep the boats
individually insured. CAST negotiated reduced insurance rates on
the boats as part of a sponsorship agreement with Bait Insurance.
     9
          CAST is one of only two qualifying circuits for the
Millennium Tournament in Texas.
                                       - 8 -

directors he supervises in the amount of $4 per member couple per

event.10

      Petitioners have also expanded the income potential of their

fishing activity by constructing a “weigh station” at Lake O.H.

Ivie.      Petitioners use the weigh station, a stage constructed on

a flatbed trailer, as a place for tournament participants to

display fish, receive fishing awards, and have their pictures

taken.      Petitioners earn income from the weigh station by selling

advertising space to local businesses and by using the weigh

station to recruit additional CAST members.

      Petitioners reported the following Schedule C net losses and

profits resulting from their involvement in CAST for the taxable

years 1993 through 1998:
                      1993      1994       1995        1996      1997       1998

Gross income          $5,065    $19,788    $23,679    $30,559    $26,474    $17,103
Total expenses        22,148     41,391     37,525     28,822     22,243     15,452
Net profit or (loss) (17,083)   (21,603)   (13,846)      1,737      4,231      1,651




Petitioners also claimed Schedule C net loss deductions for the

1991 and 1992 taxable years of $10,943 and $16,466, respectively.

      In a notice of deficiency for the 1993, 1994, and 1995

taxable years, respondent determined that petitioners did not

engage in their fishing activity with an actual and honest



      10
          At the time of trial, petitioner supervised three newly
organized regions of CAST, while also acting as director of the
western region.
                                 - 9 -

objective of making a profit and that the expenses incurred in

connection with the fishing activity were therefore deductible

only up to the amount of income earned from that activity.

     As a result of respondent’s determination, petitioners were

allowed the standard deduction for 1993, which was larger than

the allowable activity limitation for that year, and were allowed

deductions of $19,788 and $23,679 for the 1994 and 1995 taxable

years, respectively.

     Section 162(a) allows a taxpayer to deduct "all the ordinary

and necessary expenses paid or incurred * * * in carrying on any

trade or business".    No deduction is allowed for family, living,

or personal expenses.     See sec. 262(a).

     If an individual engages in an activity without the

objective of making a profit, section 183 generally limits

allowable deductions attributable to the activity to the extent

of gross income generated by such activity.    See sec. 183(b).

     For a taxpayer to be engaged in a trade or business, the

taxpayer's primary purpose for engaging in the activity must be

for income or profit, and he must be involved in the activity

with continuity and regularity.     See Commissioner v. Groetzinger,

480 U.S. 23, 35 (1987).

     Whether or not a taxpayer is engaged in the activity for

profit depends on all the surrounding facts and circumstances of

the case.   See Golanty v. Commissioner, 72 T.C. 411, 426 (1979),
                               - 10 -

affd. without published opinion 647 F.2d 170 (9th Cir. 1981).

     Greater weight is given to objective facts than to a

taxpayer's mere statement of intent.    See Dreicer v.

Commissioner, 78 T.C. 642, 645 (1982), affd. without opinion 702

F.2d 1205 (D.C. Cir. 1983).

     The regulations provide a list of relevant factors to

consider in determining whether an activity is engaged in for

profit.   Those factors are:   (1) The manner in which the taxpayer

carried on the activity; (2) the expertise of the taxpayer or his

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

carrying on the activity; (4) the expectation that the 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.

1.183-2(b), Income Tax Regs.

     No one factor is conclusive.    We do not reach a decision by

merely counting factors supporting each party's position.     See

Dunn v. Commissioner, 70 T.C. 715, 720 (1978), affd. on another

issue 615 F.2d 578 (2d Cir. 1980).

     Respondent does not contest that the claimed deductions were

incurred with respect to petitioners' fishing activity, but
                                - 11 -

asserts that petitioners did not engage in the fishing activity

with an intent to make a profit.    We disagree.

     Petitioners widely advertised their fishing activity and

engaged in numerous promotional activities in the expectation of

recruiting additional CAST members and thereby making a profit.

Petitioners also devoted substantial amounts of time to their

fishing activity in spite of their full-time employment

elsewhere.   Petitioners’ fishing activity is, in effect, a

noncontractual franchise in which directors are allowed to use

the CAST name in their respective regions and are able to keep

part of the gross receipts from the activity while accepting

responsibility for all of the attendant incurred expenses.

     Petitioners kept detailed business records and mailing lists

and constantly strove to increase the profitability of their

fishing activity.   If one fishing activity practice increased

operating expenses, petitioners sought out ways to change that

aspect of the activity in an effort to reduce expenses and make

the activity more profitable.    For example, petitioners were able

to reduce operating costs by soliciting local sponsors for

lodging and meals and by arranging for Ranger Boats to pay

petitioners’ boat show booth fees in exchange for publicity.

     Once petitioners decided to conduct this activity to earn

income for their retirement, they sought out the expertise of Mr.

Taylor, a person who had organized over 300 fishing tournaments.
                              - 12 -

After they joined CAST, petitioners continued to consult with Mr.

Taylor about five times a week.

     Petitioners also continued to study and perfect new

techniques to improve the quality and profitability of their

fishing activity.   In time, petitioners, themselves, became

experts who were relied upon by other CAST directors.   Petitioner

is now a Supervising Director with three regions reporting to him

and his gross receipts from the fishing activity will continue to

grow as more regions are created.

     Though there is no question that petitioners derive pleasure

from their fishing activity, and petitioners concede that they

fish in their own tournaments on occasion, petitioners’ passion

for fishing does not disqualify them from having a profit

objective.   The process of organizing and hosting a fishing

tournament is physically difficult and requires long hours of

work, and, in this case, far outweighs whatever personal pleasure

petitioners derive from occasional participation in their own

tournaments.

     Although petitioners sustained losses during the first 5

years of their fishing activity, this alone does not necessarily

indicate that the activity was not engaged in for profit.   See

Churchman v. Commissioner, 68 T.C. 696 (1977).

     In Zwicky v. Commissioner, T.C. Memo. 1984-471, the

taxpayers operated a charter fishing boat service and sustained
                             - 13 -

losses for the first 5 years they operated the charter service,

yet we held that the deduction of those losses was not barred by

section 183 because the facts of the case indicated that the

taxpayers had an intent to make a profit.   The facts of this case

likewise indicate that petitioners had an intent to make a

profit.

     We also note that although petitioners in this case

sustained losses in the first 5 years of their operation, they

reported a gross profit for the 1996, 1997, and 1998 taxable

years.

     At trial, respondent argued that petitioners intentionally

altered the reporting of their Schedule C income and expenses for

the 1996, 1997, and 1998, taxable years in order to artificially

create the appearance of profit through the exclusion of

deductible expenses and the inclusion of unrelated income.    We do

not agree.

     Though petitioners’ income has fluctuated due to membership

changes and the general fortunes of the bass fishing industry,

the record establishes that petitioners’ expenses declined in

1996, 1997, and 1998, due to contributions from sponsors, a

decrease in travel costs, and reduced expenses.   In addition,

petitioners’ income rose in 1996 as a result of petitioner’s

promotion to Supervising Director and from income earned by

petitioners from the weigh station at Lake O.H. Ivie.
                              - 14 -

     Upon the basis of the record, we find that the totality of

the facts and circumstances indicates that petitioners' fishing

activity was an activity engaged in for profit pursuant to

section 183.   Therefore, petitioners' losses attributable to

their fishing activity are not subject to the limitations of

section 183.

     To reflect the foregoing,

                                      Decision will be entered

                                 for petitioners.
