T.C. Memo. 2010-156
UNITED STATES TAX COURT
ESTATE OF KEITH K. ROBERTS, DECEASED, JANE A. ROBERTS, SURVIVING
SPOUSE AND JANE A. ROBERTS, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5513-06. Filed July 21, 2010.
Kevin M. Sullivan, for petitioners.
Anita A. Gill, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
GOEKE, Judge: Respondent determined deficiencies in the
joint income tax of Keith Roberts and Jane Roberts for the tax
years 1996 through 1998 and 2001 through 2003. The sole issue
for decision is whether Keith Roberts may increase his at-risk
amount in his single member limited liability company (LLC) under
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section 465.1 For the reasons stated herein, we conclude that no
such increase is allowable.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts and the accompanying exhibits are
incorporated herein by this reference. At the time the petition
was filed, Jane Roberts (hereinafter Mrs. Roberts) resided in
Indiana. Keith Roberts (hereinafter Mr. Roberts) passed away
before the petition was filed.
In April 2001 Mr. Roberts filed articles of organization
under Indiana law for “CTI Leasing LLC” and became its sole
member. For Federal tax purposes CTI Leasing LLC was a
disregarded entity.
Mrs. Roberts owned no interest in CTI Leasing LLC but filed
joint returns with Mr. Roberts for the years at issue. She is
the surviving spouse of Mr. Roberts and the personal
representative of his estate.
CTI Leasing LLC was created for the purpose of leasing
transportation equipment to a related entity, Central Trucking,
Inc. (Central Trucking). Central Trucking was an S corporation
of which Mr. Roberts was sole shareholder. Under a lease
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect during the years at issue,
and all Rule references are to the Tax Court Rules of Practice
and Procedure.
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agreement between CTI Leasing LLC and Central Trucking, all
transportation equipment owned by CTI Leasing LLC was leased to
Central Trucking. In return Central Trucking was obligated to
pay CTI Leasing LLC the principal and interest financing cost for
each unit plus $25 per month.
On October 21, 2002, Mr. Roberts lent CTI Leasing LLC
$425,000. The following day he received back a promissory note
in that amount. CTI Leasing LLC then used the $425,000 to
purchase a cashier’s check in the same amount. The cashier’s
check was used toward the purchase of a 2003 Vantare H3-45 Super
S2 RV (RV) for $1,392,714. Vantare RVs are custom-built, fully
furnished, luxury coach RVs known for their “yacht quality fit
and finish”.
The RV was purchased on October 31, 2002. The name on the
purchase documents was “Keith Roberts, DBA CTI Leasing” and title
was in the name of “CTI Leasing”. “CTI Leasing” was not a
registered business entity in the State of Indiana. “CTI Leasing
LLC” did not operate under the name “CTI Leasing”.
Central Trucking’s employer identification number (EIN) was
on the purchase documents for the RV. Central Trucking and CTI
Leasing LLC were listed with separate EINs on Mr. Roberts’ Form
W-2, Wage and Tax Statement, and on the Form 1040, U.S.
Individual Income Tax Return, of Mr. and Mrs. Roberts for 2001.
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The Internal Revenue Service (IRS) conducted an audit of Mr.
Roberts’ income tax returns from June 2003 through November 2004.
During the audit the IRS was able to interview representatives of
CTI Leasing LLC multiple times. CTI Leasing LLC representatives
also supplied a multitude of business documents to the IRS.
During the audit representatives of CTI Leasing LLC reported
no outstanding loans from Mr. Roberts to CTI Leasing LLC. One
loan for $77,000 payable to the shareholder did exist at the
close of 2001; however, this reflected a loan that was actually
from Central Trucking to CTI Leasing LLC, which was paid off a
few months after the end of 2001. The representatives never
reported that CTI Leasing LLC owned the RV. In addition, the
2002 depreciation schedule for CTI Leasing LLC does not list the
purchase of such an asset in 2002. No evidence was introduced at
trial that the RV was included in the lease between CTI Leasing
LLC and Central Trucking.
On December 16, 2005, respondent issued a notice of
deficiency to Mrs. Roberts. Mr. Roberts had passed away by that
date. Respondent determined the following deficiencies:
Year Deficiency
1996 $206,753
1997 585,923
1998 154,992
2001 329,151
2002 321,860
2003 228,186
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Petitioners timely petitioned this Court contesting respondent’s
determination. A trial was held in Indianapolis, Indiana.
Before trial petitioners and respondent settled most of the
issues in dispute; however, they still disagree whether Mr.
Roberts was entitled to increase his amount at risk in CTI
Leasing LLC as a result of his $425,000 loan. This is the sole
issue remaining for our consideration.
OPINION
I. Section 465 in General
Section 465(c)(1)(C) provides that the section 465 at-risk
rules apply to taxpayers engaged in the activity of leasing
section 1245 property. The transportation equipment CTI Leasing
LLC leased to Central Trucking was section 1245 property under
section 1245(a)(3). Therefore, the section 465 at-risk rules
apply in this case.
Section 465(a) limits the losses a taxpayer may deduct with
respect to a particular activity to the “aggregate amount with
respect to which the taxpayer is at risk * * * for such
activity”. Alexander v. Commissioner, 95 T.C. 467, 469 (1990),
affd. without published opinion sub nom. Stell v. Commissioner,
999 F.2d 544 (9th Cir. 1993). A taxpayer’s amount at risk
includes the amount of money and the bases of property
contributed to an activity. Sec. 465(b)(1)(A). The amount at
risk also includes amounts borrowed with respect to such
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activity. Sec. 465(b)(1)(B). Pursuant to section 465(b)(2)(A),
amounts borrowed with respect to an activity include “amounts
borrowed for use in an activity to the extent that * * * [the
taxpayer] is personally liable for the repayment of such
amounts.” Notwithstanding the foregoing provisions, a taxpayer's
amount at risk does not include amounts protected against loss
through nonrecourse financing, guaranties, stop loss agreements,
or other similar arrangements. Sec. 465(b)(4).
II. Burden of Proof
Generally, taxpayers bear the burden of proving, by a
preponderance of the evidence, that the determinations of the
Commissioner in a notice of deficiency are incorrect. Rule
142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933); Griffin v.
Commissioner, 315 F.3d 1017, 1021 (8th Cir. 2003), vacating T.C.
Memo. 2002-6. Petitioners do not argue that section 7491 causes
the burden of proof to shift to respondent, and they have not
established that they meet the requirements of section
7491(a)(2)(A) and (B).
III. Arguments of the Parties
Respondent argues that section 465(b) precludes Mr. Roberts
from increasing his amount at risk in CTI Leasing LLC as a result
of the $425,000 loan as the LLC was a disregarded entity not
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separate from him for tax purposes. Respondent also contends
that the Mr. Roberts personally owned and used the RV and that
the $425,000 was therefore not includable as an amount at risk.
Petitioners argue that CTI Leasing LLC in fact owned and
used the RV and therefore Mr. Roberts’ amount at risk was
properly increased under section 465. Petitioners also contend
that the $425,000 was a capital contribution rather than a loan
for purposes of section 465.
IV. Ownership and Use of the RV
As stated previously, respondent claims that CTI Leasing LLC
did not own or use the RV but that Mr. Roberts owned and used it
personally. Respondent argues that if CTI Leasing LLC did not
own or use the RV, then Mr. Roberts did not contribute any amount
to CTI Leasing LLC or lend any amount for CTI Leasing LLC’s use
and therefore would not be able to increase his amount at risk in
the activity under section 465(b)(1)(A) and (2).
Petitioners contend the RV was in fact a business asset
owned and used by CTI Leasing LLC and that Mr. Roberts’ amount at
risk in CTI Leasing LLC was therefore properly increased under
section 465(b)(1)(A) and (2).
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A. No Indication of Ownership of RV by CTI Leasing LLC
The 2002 depreciation schedule for CTI Leasing LLC does not
list the purchase of a Vantare RV in 2002. CTI Leasing LLC’s
failure to list the RV on its depreciation schedule is evidence
that it was not the true owner of the RV.
Additionally, during the IRS audit of Mr. Roberts’ returns,
neither Mr. Roberts nor representatives of CTI Leasing LLC ever
reported ownership of a Vantare RV by CTI Leasing LLC. CTI
Leasing LLC representatives also stated that it had no
outstanding loans from Mr. Roberts at the end of 2002. This is
evidence that the RV was purchased with the personal funds of Mr.
Roberts and was not intended for use by CTI Leasing LLC.
B. Title of RV Recorded in Name of “CTI Leasing”
Mr. Roberts recorded the title of the RV under the name “CTI
Leasing” and signed the bill of sale as “Keith Roberts DBA CTI
Leasing”. Petitioners argue this is evidence that CTI Leasing
LLC is the owner of the RV. However, petitioners produced no
evidence that “CTI Leasing LLC” did business as “CTI Leasing”.
Standing alone, the similarity between “CTI Leasing LLC” and “CTI
Leasing” is not conclusive, as it is possible CTI Leasing could
be a separate business from CTI Leasing LLC. See, e.g.,
Loewen-Am., Inc. v. Advance Distrib. Co., No. 79-1230C(2), 1981
U.S. Dist. LEXIS 17745, at *2 (E.D. Mo. Nov. 23, 1981) (“‘Advance
Distributing Company’ and ‘Advance Distributing Company, Inc.’
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are separate entities.”); see also Clarke Auto Co. v. Fyffe, 116
N.E.2d 532, 534 (Ind. Ct. App. 1954) (Clarke Auto Co., Inc. “was
an Indiana corporation organized in 1946 * * * there was another
Indiana corporation organized in 1949 known as Clarke Auto Co. of
Indiana, Inc.”).
State law determines the requirements an entity must meet to
act under a “doing business as” (d.b.a.) name. See, e.g., Pro
Edge, L.P. v. Gue, 374 F. Supp. 2d 711, 744 (N.D. Iowa 2005)
(Federal court looks to State law to determine whether use of a
fictitious business name was proper.). “CTI Leasing LLC” was the
name on the articles of organization. Ind. Code Ann. sec. 23-15-
1-1(e)(5) (LexisNexis Supp. 2009) provides that if an LLC wishes
to do business under a name other than the name on its articles
of organization, the LLC must file a certificate stating the
assumed name with the Indiana secretary of state.
Petitioners produced no evidence that CTI Leasing LLC was
authorized by the Indiana secretary of state to do business as
“CTI Leasing”. Nor have petitioners produced any other evidence
that CTI Leasing LLC has ever done business as “CTI Leasing”.
We must however consider the fact that “CTI Leasing” might
have sufficed as a shorthand reference in the mind of Mr. Roberts
at the time he made out the title and the bill of sale. In the
light of the above facts, we find the fact that “CTI Leasing” was
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on the title and bill of sale only slightly favors petitioners’
ownership argument.
C. Use of Central Trucking’s EIN on the RV Title
CTI Leasing LLC and Central Trucking each had an individual
EIN. Mr. Roberts put Central Trucking’s EIN on the RV title.
Respondent argues this is evidence that CTI Leasing LLC was not
the owner of the RV. Petitioners contend that CTI Leasing LLC
was not required to have an EIN, and therefore the fact that CTI
Leasing LLC’s EIN was not on the title is not evidence of
ownership by an entity other than CTI Leasing LLC.
Petitioners are correct that CTI Leasing LLC, being a
single-member disregarded entity, was not required to have and/or
use an EIN. See sec. 301.6109-1(h)(2)(i), Proced. & Admin. Regs.
However, that section provides: “a single owner entity that is
disregarded as an entity separate from its owner * * * must use
its owner’s taxpayer identifying number (TIN) for federal tax
purposes.” Because CTI Leasing LLC was a disregarded entity, it
would have been required to use Mr. Roberts’ TIN for Federal tax
purposes.
We find no support for the proposition that there is a
Federal tax purpose in putting a TIN/EIN on title to a vehicle.
One possible argument for the proposition could be that ownership
of the RV would determine which entity would be permitted to
claim depreciation deductions from Federal income tax under
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section 167. Arevalo v. Commissioner, 124 T.C. 244, 251-252
(2005), affd. 469 F.3d 436 (5th Cir. 2006); Travelers Ins. Co. v.
St. Jude Hosp., Nos. 90-1983, 90-2601, 1992 WL 364999 (E.D. La.
Nov. 24, 1992). However, “Depreciation deductions are based on
an investment in and actual ownership of property rather than the
possession of bare legal title.” Arevalo v. Commissioner, supra
at 252 (citing Grant Creek Water Works, Ltd. v. Commissioner, 91
T.C. 322, 326 (1988)). It follows that for Federal tax
depreciation purposes the EIN/TIN on the RV title will not
determine which entity may claim depreciation for the RV. We
find no Federal tax purpose in the TIN/EIN on a vehicle title.
As no Federal tax purpose existed, section 301.6109-
1(h)(2)(i), Proced. & Admin. Regs., did not require Mr. Roberts
to put his own TIN on the RV title if CTI Leasing LLC was the
owner. Additionally, we can find no support for the proposition
that a TIN/EIN on a title is evidence of ownership when no
specific TIN/EIN was required. Therefore, we find that putting
of Central Trucking’s EIN on the RV title is a neutral factor
when considering ownership of the RV.
D. Use of the RV by CTI Leasing LLC
Petitioners claim that the RV was leased to Central Trucking
pursuant to the lease agreement between CTI Leasing LLC and
Central Trucking and was therefore used by CTI Leasing LLC.
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Petitioners, however, introduced no evidence that the RV was
included in the lease or that the RV was used by CTI Leasing LLC
for any purpose. Petitioners having failed to introduce any
probative evidence that the RV was included in the lease or used
by CTI Leasing LLC in any way, we find that petitioners’ claims
regarding use of the RV are not sustainable.
E. Conclusion on Ownership and Use of the RV
Considering the above arguments, we find that petitioners
have not met their burden of proving that CTI Leasing LLC owned
the RV. Additionally, petitioners produced no probative evidence
regarding use of the RV. Petitioners have therefore failed to
establish that the RV was used in the business of CTI Leasing LLC
and was not solely used by Mr. Roberts for personal use.
V. Effect of the Loan on Amount at Risk
Section 465(b)(1)(A) provides that a taxpayer is at risk for
amounts contributed “to the activity”. Because we find CTI
Leasing LLC did not own or use the RV, we conclude the $425,000
was not contributed “to the activity” of CTI Leasing LLC.
Section 465(b)(2) provides that a taxpayer is at risk for
amounts borrowed “for use in an activity”. Because we find CTI
Leasing LLC did not use the RV, as part of the lease or
otherwise, we conclude the $425,000 was not borrowed “for use in
[the] activity” of CTI Leasing LLC.
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The $425,000 loan does not satisfy the requirements of
either section 465(b)(1)(A) or (2). Therefore, Mr. Roberts was
not entitled to treat any of the $425,000 as an amount for which
he was at risk in CTI Leasing LLC under section 465.
“The amount at risk is the amount of money the taxpayer has
invested in the business * * * that may actually be lost from the
activity.” Oren v. Commissioner, 357 F.3d 854, 859 (8th Cir.
2004) (emphasis supplied), affg. T.C. Memo. 2002-172. Because
petitioners have failed to establish the $425,000 was contributed
to or used in the business of CTI Leasing LLC, we find the
$425,000 is not considered an amount for which Mr. Roberts was at
risk.
VI. Conclusion
For the reasons discussed hereinabove, we find that Mr.
Roberts was not entitled to increase his amount at risk in CTI
Leasing LLC under section 465. Accordingly, we sustain
respondent’s determination with respect to the issue.
To reflect the foregoing and the settled issues,
Decision will be entered
under Rule 155.