T.C. Memo. 1997-367
UNITED STATES TAX COURT
RICHARD JACKSON SLEEPER, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 9231-96. Filed August 11, 1997.
Richard Jackson Sleeper, pro se.
Alvin A. Ohm, for respondent.
MEMORANDUM OPINION
GOLDBERG, Special Trial Judge: This case was heard pursuant
to section 7443A(b)(3) and Rules 180, 181, and 182.1 Respondent
determined deficiencies in petitioner's Federal income taxes in
the amounts of $3,232, $4,089, and $4,001 for the taxable years
1992, 1993, and 1994, respectively. The issue for decision is
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
2
whether petitioner engaged in tournament fishing for profit
during the years in issue.
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated by this reference. Petitioner resided in Dallas,
Texas, at the time his petition was filed.
During the years in issue, petitioner was employed full time
by Gourmet Award Foods as a regional sales manager in
Duncanville, Texas. Petitioner received wage income in the
amounts of $54,489, $47,684, and $47,000 in 1992, 1993, and 1994,
respectively. Petitioner also received income from the sale of
assets in each of these years in the amounts of $5,013, $9,102,
and $10,233.
Petitioner became interested in tournament fishing sometime
in 1989 or 1990. He had friends who were involved in the
activity, and he traveled to lakes with them in order to obtain
knowledge about fishing. To learn about tournament fishing,
petitioner met other fishermen at these lakes and watched fishing
programs on television. Petitioner had not engaged in fishing
prior to this time, although he had fished with his father on
occasion when he was younger. Petitioner began to participate in
tournaments, specifically bass tournaments, in 1990 or 1991.
The tournaments in which petitioner fished were conducted
within the State of Texas. Petitioner fished in some circuit
3
tournaments, including Bass and Buddy tournaments and Angler's
Choice tournaments, and some individual tournaments such as the
McDonald's tournaments. Typically, tournament participants had
to be out on the lake by 6 or 7 in the morning and fished until
3:30 in the afternoon. Petitioner owned his own boat for
fishing. Petitioner estimated that he competed in 15 to 20
tournaments in each of the years 1991 and 1992, 10 or 11
tournaments in 1993 and 1994, and about 20 in 1995.
Generally, an entry fee was required in order to participate
in tournaments. The fees charged varied among tournaments, and,
within some tournaments, amateurs and professional paid different
fees.
Petitioner found that the largest constraint on his
participation in tournament fishing was time. Generally, he was
only able to practice and participate in tournaments on the
weekends because he worked full time.
Petitioner retained copies of receipts for his expenditures,
as well as the canceled checks related to tournament fishing, in
envelopes by year. Petitioner also maintained log books. These
books contained information on each of the tournaments in which
petitioner participated, including such information as what he
caught, what he used to catch it, the weather conditions, the
temperature, the lakes fished, and the days on which he fished.
4
During the years in issue, petitioner earned some gross
income from the tournaments in which he participated. However,
petitioner has never earned income in excess of his expenses from
tournament fishing, including years subsequent to those at issue.
Petitioner could not predict when the activity might become
profitable.
At sometime, petitioner acquired a corporate sponsor, Luhr
Jensen, a lure manufacturer. The sponsor did not pay petitioner
any endorsement fees; however, he was allowed to purchase lures
at a discount. Petitioner also participated in some seminars on
behalf of Luhr Jensen. Petitioner's photograph and testimonial
were displayed in an advertisement for a video on how to obtain
corporate sponsorship. However, it is unclear whether this
occurred during or after the years in issue. Moreover, it does
not appear that petitioner received compensation for this
endorsement.
In 1993, petitioner consulted a certified public accountant
with respect to the preparation of his income tax returns. The
accountant informed petitioner that if he were engaged in
tournament fishing for profit, his related expenses would be
deductible.
On Schedule C of his Federal income tax return for 1992,
petitioner reported gross receipts in the amount of $2,835 and
deductions in the amount of $13,398 from tournament fishing.
5
Petitioner claimed a loss in the amount of $10,563 from this
activity. On his 1993 return, petitioner reported gross receipts
of $1,350, less deductions in the amount of $14,891, for a loss
of $13,541 from this activity. For 1994, petitioner claimed a
loss of $14,329 from tournament fishing resulting from gross
receipts in the amount of $2,100, less expenses of $16,429.
In the notice of deficiency, respondent disallowed
petitioner's claimed losses from tournament fishing for each of
the years in issue because petitioner had not established that he
was involved in the activity for profit, and, thus, the
limitation of section 183 applied. As a computational result of
these adjustments, respondent disallowed a portion of
petitioner's itemized deductions in the amounts of $1,003,
$1,286, and $642 for 1992, 1993, and 1994, respectively.
Respondent's determinations are presumed correct, and
petitioner bears the burden of proving them erroneous. Rule
142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Section
183 generally limits allowable deductions attributable to an
activity to the extent of gross income from that activity if the
taxpayer engages in such activity without the objective of
profit. Section 183(c) defines an activity not engaged in for
profit as "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." Whether
6
petitioner was engaged in tournament fishing for profit depends
on whether he was so engaged "with an ‘actual and honest’
objective of making a profit." Elliott v. Commissioner, 90 T.C.
960, 970 (1988), affd. without published opinion 899 F.2d 18 (9th
Cir. 1990); Dreicer v. Commissioner, 78 T.C. 642, 645 (1982),
affd. without opinion 702 F.2d 1205 (D.C. Cir. 1983). Although a
reasonable expectation of profit is not required, petitioner's
profit objective must have been bona fide. Hulter v.
Commissioner, 91 T.C. 371, 393 (1988). Whether petitioner
possessed the necessary objective is a question of fact to be
determined based on all facts and circumstances, and petitioner
bears the burden of proving such objective. Taube v.
Commissioner, 88 T.C. 464, 480 (1987).
The regulations set forth the following nonexclusive factors
to consider in determining whether an activity is engaged in for
profit: (1) The manner in which the taxpayer carries 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 assets used in the activity
may appreciate in value; (5) the success of the taxpayer in
carrying on other activities; (6) the taxpayer's history of
income or losses with respect to the activity; (7) the amount of
occasional profit, if any, which is earned; (8) the financial
status of the taxpayer; and (9) whether elements of personal
7
pleasure or recreation are involved. Sec. 1.183-2(b), Income Tax
Regs.
The balance of the relevant factors tends to support
respondent's position that petitioner did not engage in
tournament fishing for profit. Petitioner maintained some
records; however, he has not suggested or shown that he did so in
order to conduct his activity in a more profitable manner.
Although petitioner was gaining expertise in fishing over the
years, when he commenced the activity he was a recreational
fishermen, and he did not consult with any advisers, at any time,
concerning the profitability associated with this type of
activity. Petitioner never earned a profit from tournament
fishing, nor could he project when he might do so. Furthermore,
the losses claimed by petitioner in the years in issue produced a
tax benefit by reducing his income tax liability in each year.
Finally, petitioner derived personal pleasure from this activity.
He testified that he chose to compete in bass tournaments, as
opposed to those for other types of fish, because bass are tough
and he enjoys challenges.
On the other hand, some evidence favors petitioner.
Petitioner devoted a significant amount of his free time to
practicing for, and participating in, tournament fishing. In
addition, petitioner worked at securing corporate sponsorship.
However, this effort does not appear to have been directed at
8
making a profit because such sponsorship was not financially
rewarding.
Petitioner argues that a taxpayer may be engaged in an
activity for profit even if losses are sustained for a number of
years. See, e.g., Keanini v. Commissioner, 94 T.C. 41 (1990);
Kimbrough v. Commissioner, T.C. Memo. 1988-185. However, as
stated above, whether a taxpayer is engaged in an activity for
profit depends upon the specific facts and circumstances of the
individual case. Based on our analysis of the factors, we
conclude that petitioner did not engage in tournament fishing
with the requisite profit objective. See Connolly v.
Commissioner, T.C. Memo. 1994-218, affd. without published
opinion 58 F.3d 637 (5th Cir. 1995). Respondent is sustained on
this issue.
To reflect the foregoing,
Decision will be entered
for respondent.