Individual Taxation Research Paper-Arlene Case

Topics: Horse, Equestrianism, Profit Pages: 2 (563 words) Published: March 18, 2012
* As a result of a bitter divorce, Arlene had no means of support. * Forced to lead a living for herself, she established a business (and LLC) that integrated equestrian activities with a home and barn design activity. * Arlene competed in horse shows and then contacted directly with potential clients at the shows. She didn’t use advertising media. She used her knowledge of the idiosyncrasies of her client’s horses to design home and barn for clients. * Arlene’s overall business produced substantial profits in six of the seven years. For the loss year, the amount of the loss was small. Issues

* Whether equestrian activity and design activity could be considered an integrated activity? * Was the integrated activity for profit?
* Whether expenses related to equestrian activity should be considered personal expenses or expenses incurred in the integrated business? Conclusion
Arlene’s equestrian activity and home and barn design activity could be treated as a single integrated activity, and the single integrated activity was held for profit. Meanwhile, equestrian-related expenses should be considered expenses incurred in the integrated business rather than personal expenses. Therefore, Arlene’s position of reporting two activities on a single Schedule C is correct. Rationale

* The first issue to be addressed is whether equestrian and design undertakings could be considered a single integrated activity. Topping, Tracey, (2007) TC Memo 2007-92 has very similar facts with those for Arlene. This court case shows that “Equestrian was entitled for Code Sec. 183 purposes to treat loss-generating horse activity and profitable home and barn design business as single, profitable activity: although reported on separate Schedules C, activities were sufficiently interconnected organizationally and economically to be treated as single activity.” Between the equestrian and design undertakings, supported by the facts of this case, there was a...
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