Joseph J. Tallal, Jr. v. Commissioner of Internal Revenue

Fifth Circuit

Joseph J. Tallal, Jr. v. Commissioner of Internal Revenue

778 F.2d 275, 57 A.F.T.R.2d (RIA) 438, 1985 U.S. App. LEXIS 25430

CourtCourt of Appeals for the Fifth Circuit

DecidedDecember 16, 1985

Docket85-4085

StatusPublished

Cited by58 cases

This text of 778 F.2d 275 (Joseph J. Tallal, Jr. v. Commissioner of Internal Revenue) is published on Counsel Stack Legal Research, covering Court of Appeals for the Fifth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

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Joseph J. Tallal, Jr. v. Commissioner of Internal Revenue, 778 F.2d 275, 57 A.F.T.R.2d (RIA) 438, 1985 U.S. App. LEXIS 25430 (5th Cir. 1985).

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Opinion

GEE, Circuit Judge.

This is a tax deficiency case. Appellant Tallal argues that the tax court erred in finding that Cumberland, the partnership in which Tallal was a limited partner, was not engaged in coal mining with the primary objective and intent of making a profit and therefore erred in upholding the Commissioner’s assessment of a deficiency in Tallal’s 1976 tax return. We affirm.

All expenses of every business transaction are not necessarily deductible under 26 U.S.C. § 162(a). Before any such deduction is allowed, it must be shown that the activity or enterprise was undertaken with the dominant hope and intent of realizing a profit. Louisiana Credit Union League v. United States, 693 F.2d 525, 532 (5th Cir.1982); Hirsch v. Commissioner, 315 F.2d 731, 736 (9th Cir.1963). When the taxpayer is a member of a partnership, we have interpreted 26 U.S.C. § 702(b) to require that business purpose must be assessed at the partnership level. Barham v. United States, 301 F.Supp. 43, 44-47 (M.D.Ga.1969), aff'd per curiam, 429 F.2d 40, 41 (5th Cir.1970). Accordingly, for the purpose of determining whether an expense is deductible under 26 U.S.C. § 162(a), the partnership’s motive controls, not an individual partner’s motive for joining the partnership. Brannen v. Commissioner, 722 F.2d 695, 703-704 (11th Cir. 1984); Goodwin v. Commissioner, 75 T.C. 424, 437 (1980), aff'd, 691 F.2d 490 (3d Cir.1982) (without published opinion); Madison Gas & Electric Co. v. Commissioner, 633 F.2d 512, 517 (7th Cir.1980).

Using the criteria identified in Treasury Regulation § 1.183-2 for guidance, the tax court in today’s case found that Cumberland lacked a bona fide profit objective. Based on this, the tax court concluded that Tallal’s deduction under § 162(a) was not justified. The tax court’s finding of a lack of a bona fide profit objective is not clearly erroneous. Pullman-Standard v. Swint, 456 U.S. 273, 285-87, 102 S.Ct. 1781, 1788-89, 72 L.Ed.2d 66 (1982); Byram v. United States, 705 F.2d 1418, 1422-23 (5th Cir.1983).

We AFFIRM.

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GEE, Circuit Judge.

This is a tax deficiency case. Appellant Tallal argues that the tax court erred in finding that Cumberland, the partnership in which Tallal was a limited partner, was not engaged in coal mining with the primary objective and intent of making a profit and therefore erred in upholding the Commissioner’s assessment of a deficiency in Tallal’s 1976 tax return. We affirm.

All expenses of every business transaction are not necessarily deductible under 26 U.S.C. § 162(a). Before any such deduction is allowed, it must be shown that the activity or enterprise was undertaken with the dominant hope and intent of realizing a profit. Louisiana Credit Union League v. United States, 693 F.2d 525, 532 (5th Cir.1982); Hirsch v. Commissioner, 315 F.2d 731, 736 (9th Cir.1963). When the taxpayer is a member of a partnership, we have interpreted 26 U.S.C. § 702(b) to require that business purpose must be assessed at the partnership level. Barham v. United States, 301 F.Supp. 43, 44-47 (M.D.Ga.1969), aff'd per curiam, 429 F.2d 40, 41 (5th Cir.1970). Accordingly, for the purpose of determining whether an expense is deductible under 26 U.S.C. § 162(a), the partnership’s motive controls, not an individual partner’s motive for joining the partnership. Brannen v. Commissioner, 722 F.2d 695, 703-704 (11th Cir. 1984); Goodwin v. Commissioner, 75 T.C. 424, 437 (1980), aff'd, 691 F.2d 490 (3d Cir.1982) (without published opinion); Madison Gas & Electric Co. v. Commissioner, 633 F.2d 512, 517 (7th Cir.1980).

Using the criteria identified in Treasury Regulation § 1.183-2 for guidance, the tax court in today’s case found that Cumberland lacked a bona fide profit objective. Based on this, the tax court concluded that Tallal’s deduction under § 162(a) was not justified. The tax court’s finding of a lack of a bona fide profit objective is not clearly erroneous. Pullman-Standard v. Swint, 456 U.S. 273, 285-87, 102 S.Ct. 1781, 1788-89, 72 L.Ed.2d 66 (1982); Byram v. United States, 705 F.2d 1418, 1422-23 (5th Cir.1983).

We AFFIRM.

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778 F.2d 275, 57 A.F.T.R.2d (RIA) 438, 1985 U.S. App. LEXIS 25430, Counsel Stack Legal Research, https://law.counselstack.com/opinion/joseph-j-tallal-jr-v-commissioner-of-internal-revenue-ca5-1985.

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