Her story
has been out there for a while.
I did a
quick search and found that she appeared before the Tax Court in 2013. She was
back in 2015 and now again in 2019.
Her name is
Denise Celeste McMillan (McMillan), and she has to do with horses.
In the tax
world, horses have to do with hobby losses.
Let’s take a
moment on what that term means.
Let’s say
that you take on a side gig. It is arguable how serious you are about the gig,
but there is no argument that you are losing money doing it.
And you keep
losing money … year after year.
The first
thing you or I would ask is: why? The second question would be: how are you
affording to do this?
There you
have the two issues at the heart of a hobby loss challenge:
(1) Are you running your gig as a
business? If the gig is lagging, a business owner would do something: market
more effectively, swap-out products offered for sale, move to another location
with better traffic, maybe even close the business and try something else.
(2) How can you afford this? Maybe you sold
your business for huge bucks and are now following your lifelong dream of
collecting every Ukrainian comic title printed from the 1950s through the 1970s.
It is not a lucrative business, but it has a loyal following. You can afford to
live the dream because of that big-bucks thing.
McMillan definitely
loves horses. She started riding at age four and started formal lessons at age
nine. She won numerous awards. She started a specialized business, taking
difficult horses on consignment. She would retrain them and later sell them at
a profit.
Sounds interesting.
She normally
kept between one and six horses.
The more the
better, methinks.
She went
through a difficult stretch (ten years) owning just own horse (Goldrush). Goldrush had issues and did not compete, show
or breed.
Not good.
In 2007 she sent
Goldrush to Australia to stand at stud.
That should get
the revenues going again, hopefully.
In 2008 and
two months after arriving in Australia, Goldrush died.
Wow.
I guess she
will have to get another horse or few and restart.
She did not.
What she did
however is keep deducting horse-related expenses.
And now we
have her third trip to Tax Court.
She says she
has a business.
The IRS says
she does not.
What do you
think?
Here is the
Court:
We believe Ms. McMillan when she says that she’s been continuously involved with horses since the 1970s. But her last horse died in 2008, at which point she hadn’t shown or bred in a decade. We therefore find that if her horse activity was ever a trade or business, that trade or business ended before 2010, and in that year she was at most looking at starting anew.”
The Court is
being diplomatic here. It is saying that her previous activity had ended, but
perhaps another had taken its place.
So the
question is: had she started a new activity after the death of Goldrush?
Remember
that in tax-speak, an activity requires “regular and continuous” involvement.
It does not have to be a 24/7 thing, but it does have to be more than “someday isle”
dreamweaving over beers with a friend.
Ms. McMillan’s ‘horse breeding/showing’ business hadn’t actually commenced or resumed by the end of 2010.”
Guess not.
The best she could get would be start-up expenses, to be deducted over time once
that business in fact started.
The moral of
story seems clear: if you want to say that you are in the horse business, you
may want to own a horse.
