NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS JUN 24 2021
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
No. 20-16927
BRENDAN G. JOHNSON and
KIRSTEN L. JOHNSON,
D.C. No.
2:19-cv-00674-JCM-DJA
Plaintiffs-Appellants,
v.
MEMORANDUM*
UNITED STATES OF AMERICA,
Defendant-Appellee.
Appeal from the United States District Court
for the District of Nevada
James C. Mahan, District Judge, Presiding
Argued and Submitted June 14, 2021
San Francisco, California
Before: TASHIMA and BUMATAY, Circuit Judges, and RAYES,** District Judge.
Appellants appeal the district court’s order granting summary judgment to the
United States in Appellants’ action for a refund of federal income taxes for 2008,
2009, and 2010—years during which Appellants contend they were entitled to
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable Douglas L. Rayes, United States District Judge for the
District of Arizona, sitting by designation.
deduct certain pass-through and real estate losses. We have jurisdiction pursuant to
28 U.S.C. § 1291. We review the district court’s grant of summary judgment de
novo. Arakaki v. Hawaii, 314 F.3d 1091, 1094 (9th Cir. 2002). We affirm.
Appellants failed to marshal evidence to establish an entitlement to pass-
through loss deductions. Taxpayers may deduct “all the ordinary and necessary
expenses paid or incurred during the taxable year in carrying on any trade or
business[.]” Internal Revenue Code (I.R.C.) § 162(a). However, a taxpayer cannot
deduct losses stemming from activity in which he does not materially participate.
I.R.C. § 469(c)(1). Participation is material if it is regular, continuous, and
substantial. Id. at (h)(1). “[T]he burden of clearly showing the right to [a] claimed
deduction is on the taxpayer.” INDOPCO, Inc. v. Comm’r, 503 U.S. 79, 84 (1992)
(quoting Interstate Transit Lines v. Comm’r, 319 U.S. 590, 593 (1943)). Below,
Appellants cited no specific evidentiary support for any particular losses or
unreimbursed expenses, and instead directed the district court to the voluminous
record generally. The district court was not required to “examine the entire file for
evidence establishing a genuine issue of fact, where the evidence is not set forth in
the opposing papers with adequate references so that it could conveniently be
found.” Carmen v. S.F. Unified Sch. Dist., 237 F.3d 1026, 1031 (9th Cir. 2001).
Nor have Appellants shown an entitlement to deduct rental property losses
from 2008 to 2010 as non-passive losses under the “real estate professional”
2 20-16927
exemption, I.R.C. § 469(c)(7)(B). To be entitled to this exemption, Appellants were
required to meet two conditions. First, more than half of the personal services
performed in trades or businesses by Mrs. Johnson during the taxable year must have
been performed in real property trades or businesses in which she materially
participated. Id. Second, Mrs. Johnson must have performed more than 750 hours
of services during the taxable year in real property trades or businesses in which she
materially participated. Id. Appellants did not satisfy the second condition for any
of the relevant years. The district court found that Mrs. Johnson’s educational
activities were disallowed from the second condition’s calculus. Appellants do not
argue to the contrary. For 2008 and 2009, Mrs. Johnson’s qualifying hours fall
below the 750-hour threshold after disallowing the time she spent studying for a real
estate license. Similarly, Mrs. Johnson performed fewer than 750 qualifying hours
during 2010 after disallowing time she devoted to Appellants’ personal residence
and airplane hangar, rather than their rental properties. Work on Appellants’
personal properties, necessarily, does not constitute material participation in real
property trades or businesses.
AFFIRMED.
3 20-16927