United States Tax Court
Miles and Jack Vineyards, Inc.
Commissioner of Internal Revenue,
Miles Raymond (“Miles”) the Petitioner, by his attorney, David Nguyen, hereby petitions for a redetermination of the deficiencies the Commissioner of Internal Revenue (the “Commissioner”) has set forth in the notice of deficiency dated January 25, 2013. The notice was sent via the IRS Los Angeles, California office. The Petitioner request that this case be conducted under regular tax case procedures and alleges the following:
1. The Petitioner holds a 50% interest in Miles and Jack Vineyards, Inc., an S corporation with winery operations in Buellton, California (Santa Ynez Valley). The Petitioner’s taxpayer identifying number is 00-00000.
2. A notice of deficiency dated January 25, 2013 was issued to Petitioner by the Internal Revenue Service. The tax years in contention are 2006, 2007, 2008, and 2009. A copy of the notice of deficiency is included in this petition under Exhibit A.
Items and Amounts in Dispute
3. Ordinary Loss or Taxable Income. The Commissioner erred in determining adjustments to ordinary, distributable net, or taxable income of the Petitioner for taxable years ending December 31, 2006, 2007, 2008, and 2009. The amounts of the adjustments are as follows:
Sec.183 Not for
The total amount of adjustments to ordinary, distributable net, or taxable income the Commissioner deemed “not for profit” pursuant to Section 162(a) and 183(a) of the Internal Revenue Code for each of the years listed in Table 1 is in dispute (20062009).
4. Depreciation. The amount in dispute also includes the amount of depreciation of the building, improvements, and equipment that was used in the “trade or business” or “production of income” pursuant to Section 167(a). These amounts are listed under “Depreciation” on Table 1.
The amount of depreciation takes into account all buildings, equipment, and improvements made to the property for the purpose of producing wine. The calculation takes into account the applicable depreciation method, applicable recovery period, and applicable convention pursuant to Section 167(a). The appropriate portion of personal, living, and family expenses have been deducted from capital expenditures and depreciation. Miles and Maya are Texas residents and travel to California on a monthly basis to maintain the winery. When they are at the winery, they use the master bedroom and occasionally the living room area. The majority of the property is dedicated to business purposes: entertaining guests, clients, and future wine tours.
5. Accuracy-related Penalty. Because of the Commissioner’s error in determination of depreciation and ordinary loss, the penalty of 20 percent of the portion of underpayment of any tax due pursuant to Section 6662(a) of the Internal Revenue Code is also in dispute.
Moreover, even if Miles is found to have underpaid taxes for the given period, Section 6662(a) requires negligence or disregard of rules or regulation. “Negligence” is defined under this section as any failure to make a reasonable attempt to comply with provisions of this title, and “disregard” includes any careless, reckless, or 3
intentional disregard. Given Miles’ reasonable and bona fide belief that Miles and Jack Vineyard, Inc. is a for profit business, Miles does not meet the mens rea element of Section 6662(a). Throughout the periods in question, Miles has retained a CPA for accounting and tax preparation purposes and diligently provided his CPA with information...
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