I’ve been tracking hobby losses for some time now. Here’s a new one – historical research. That was what brought Sal Westrich into Tax Court. Sal Westrich was a history professor at Pratt Institute in Brooklyn. He had a very long career, beginning in 1959. He became eligible for retirement in 2000, but decided to go on a half time basis. Apparently he is still there. What to do with all that free time?
The subject matter of petitioner’s research and writing activity was “French”, and he frequently traveled to France in connection therewith. Petitioner initially focused on writing plays. One of his plays was produced in 2004, and another had a public reading. However, petitioner did not realize any income from these plays or any other plays he wrote. At some point petitioner decided he had been “overly optimistic” regarding the potential success of writing plays and switched to writing historical studies. However, as with the plays, petitioner did not realize any income from the historical studies. Petitioner did not consult with any accounting or financial advisers regarding his research and writing activity.
That comment about not consulting any financial advisers is a clue that the case is not going to go well. For the life of me, I don’t know what the Tax Court is suggesting there. Somewhere out there are financial and accounting advisers who can help you figure out how to make money from writing and research? Those advisers are not advertising very well. I don’t know of a single tax blogger who has given up his or her day job. I know one tax blogger, very well, whose day job gave him up, but that’s a different story. You’d think those accounting advisers would start with their tax blogging brothers and sisters, before going after history professors. At any rate, Professor Westrich, who represented himself, described his expenses as follows:
For 2000 through 2008 petitioner attached Schedules C to his Federal income tax returns, which stated his principal business was “research-writer”. Petitioner reported losses each year and never reported any business gross receipts or income. All of the losses related to expenses for petitioner’s trips to France. Petitioner characterized the expenses as “basically * * * living expenses.” The expenses included renting a house in France and hiring a typist, a driver, and someone to clean the house. Petitioner did not maintain any books or records of these expenses.
There was no revenue. Losses were just over $50,000 in 2007 and almost $40,000 in 2008.
The Tax Court was pretty tough on him:
Petitioner did not introduce any evidence of a business plan. He did not maintain any financial books or ledgers for his research and writing activity. Furthermore, petitioner commingled the financial affairs of his research and writing activity with his personal finances. This commingling of personal and activity funds is not indicative of businesslike practices.
Perhaps the most important indication of whether an activity is being performed in a businesslike manner is whether the taxpayer implements methods for controlling losses, including efforts to reduce expenses and generate income.
Petitioner alleges that he stopped writing plays and started writing historical studies in an attempt to improve profitability. However, petitioner did not produce any evidence demonstrating that he made a careful and thorough investigation of the potential profitability of this change before making it.
Professor Westrich was able to point to a publishing success that might make his years of research profitable. Unfortunately, the Tax Court did not think that writing “The Wines of New Jersey” required annual trips to France for nearly a decade. When I think New Jersey and wine, the thing that pops into my mine is Boone Farm Wine. That was one of the favorite wines in Fairview in the early seventies. It was really good after a couple of joints – that’s what I was told by some people anyway. Apparently, the Garden State has a strong viticulture tradition which Professor Westrich documents. Who knew?
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