- 14 -
profitable businesses of the same nature; and (3) attempting
changes in methods and techniques to improve profitability. See
id. A fourth practice, that of establishing a business plan, is
added by case law as likewise evidencing businesslike operations.
See Sanders v. Commissioner, T.C. Memo. 1999-208.
First, with respect to books and records, petitioner here
did not maintain separate books for his ranch operations.
Instead, petitioner simply recorded the checks and receipts
relating to the ranch in a separate file on his personal
computer. He then annually gave this information to his
accountant for use in preparing petitioners’ tax return. This
minimal record keeping, however, falls short of what has been
identified by courts as signaling a bona fide intent to profit.
For example, in Burger v. Commissioner, T.C. Memo. 1985-523,
affd. 809 F.2d 355 (7th Cir. 1987), the Court explained:
The purpose of maintaining books and records is more
than to memorialize for tax purposes the existence of
the subject transactions; it is to facilitate a means
of periodically determining profitability and analyzing
expenses such that proper cost saving measures might be
implemented in a timely and efficient manner.
Hence, while a sophisticated accounting system is not necessary,
“the usage of cost accounting techniques that, at a minimum,
provide the entrepreneur with the information he requires to make
informed business decisions” is essential. Id. The Court
reasoned that “Without such a basis for decisions affecting the
enterprise, the incidence of a profit in any given period would
Page: Previous 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 NextLast modified: May 25, 2011