Tax Court In Brief | Dunn v. Comm'r | Depreciation Deduction, Rental Income, And Passive Activity

• Published date: 07 December 2022
• Subject Matter: Real Estate and Construction, Tax, Real Estate, Income Tax, Tax Authorities
• Law Firm: Freeman Law
• Author: Freeman Law

THE TAX COURT IN BRIEF – NOVEMBER 28TH – DECEMBER 2ND, 2022

Freeman Law's "The Tax Court in Brief" covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

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Tax Litigation: The Week of November 28th, 2022, through December 2nd, 2022

• Lipka v. Comm'r, T.C. Memo. 2022-116 | December 1, 2022 | Gustafson, J. |Docket No 11455-20L
• Hallmark Research Collective v Comm'r, 159 T.C. No. 6 | November 29, 2022 | Gustafson | Dkt No. 21284-21
• Reynolds v. Comm'r, T.C. Memo 2022-115 | November 30, 2022 |Wells, J. |Docket No 14433-16
• Showalter, v. Commissioner, T.C. Memo. 2022-114 | November 30, 2022 |Lauber, J.| Dkt. No. 13116-18

Heather P. Dunn and Edison Dunn v. Comm'r |T.C. Memo 2022-112 | November 29, 2022 | Wells, J. | Dkt. No. , No. 9996-17

Short Summary: At issue in this case are several deductions that the taxpayers claimed - including depreciation and certain losses from passthrough of their wholly-owned corporation. Unfortunately, the taxpayers in this case failed to maintain sufficient documentation and failed to satisfy multiple rules that would have allowed them to claim such deductions. As a result, the deductions were denied, and accuracy-related penalties were sustained.

Key Issues:

• Whether the taxpayers were entitled to a depreciation deduction on the wife's Ford Explorer;
• Whether the taxpayers were entitled to a deduction of certain net losses; and
• Whether the taxpayers were entitled to deduct flowthrough losses from an entity they owned, Magnet Development LLC.
• Whether the taxpayers were properly assessed accuracy-related penalties.

Facts and Primary Holdings:

• The taxpayers formed Magnet Development, LLC ("Magnet"), in February 2007 to manage investments in real estate.
• On March 14, 2008, Magnet purchased a 21-unit apartment building in Hephzibah, Georgia (the "Hephzibah Building").
• Taxpayers lived approximately 150 miles from the Hephzibah Building. To assist in managing the Hephzibah Building Magnet employed Ebony Calhoun from January 5 to July 27, 2013, to collect rents, show apartments, and clean vacant apartments.
• In addition Magnet hired Augusta Partners Property Management LLC ("Augusta Partners"), to rent, lease, operate, and manage the Hephzibah building pursuant to a contract with an effective date of January 2, 2014. Taxpayers owned additional properties in Athens and Snellville, Georgia, in their individual names and which they managed on their own.
• During the years in issue taxpayer husband was employed as a full-time technology support specialist with Gwinnett County Public Schools, and taxpayer wife was employed as a full-time computer specialist with Huron Consulting Services, LLC. In addition they attempted to work as full-time real estate professionals.
• In order to substantiate their real estate activities taxpayers kept two separate logs with respect to the hours they claim to have spent working on the Hephzibah Building, the Athens property, and the Snellville...