Scott Roberts for www.theindianalawyer.com

An Indiana man who ran a horse racing business had his tax deficiencies for the 2005 and 2006 tax years voided by the 7th Circuit Court of Appeals after Judge Richard Posner ripped apart an opinion by the U.S. Tax Court.

Merrill Roberts became interested in horse racing in 1999 and built a horse track on land he owned in Indianapolis. In 2005, he decided to build a bigger horse training facility, but built it in Mooresville after the city of Indianapolis opposed the construction. The U.S. Tax Court found in 2005 and 2006 he had erroneously deducted the expenses of his horse racing business because it was only a hobby during those years. The court assessed tax deficiencies of $89,710 for 2005 and $116,475 for 2006. In 2007, the court declared it a business, and it has been considered a business ever since.

Posner wrote the decision was “untenable; it amounts to saying that a business’ start-up costs are not deductible business expenses – that every business starts as a hobby and becomes a business only when it achieves a certain level of profitability.” Posner said Roberts’ business did not begin in 2007 but 2005, when he decided to build a large training facility.

He pointed out an inconsistency in the ruling when the Tax Court said Roberts did not purchase the Mooresville property to run a business, but said the business didn’t start until it began functioning at the property. “The judge seems not to have understood that the decision to build the facility, and its construction, are also indications of a profit motive.”

The Tax Court based its ruling off a “goofy regulation” Posner wrote, citing 26 C.F.R. Section 1.183-2, Treas. Reg Section 1.183-2: Activity Not Engaged in for Profit Defined.” The regulation says that the court can use another test as long as the court proves the other factors are insufficient.

However, even when using the test, which has nine factors, Roberts’ horse racing venture was a business. All nine factors supported or at least were neutral about his horse racing venture. “It may have been a fun business, but fun doesn’t covert a business to a hobby. If it did, Facebook would be a hobby, Microsoft and Apple would be hobbies, Amazon would be a hobby, etc. ad infinitum,” Posner wrote.

The case is Merrill C. Roberts v. Commissioner of Internal Revenue, 15-3396.

Indianapolis - Today, Governor Mike Pence honored 25 Indiana companies with the Governor’s Century or Half Century Business Award, recognizing each company for its longevity and service to its employees, community and the state.
“As Indiana celebrates its bicentennial, we honor the companies that have helped build a state with a record employment and continued economic growth,” said Governor Pence. “These companies, which have been growing and adding jobs here for at least 50 or 100 years, are an engine of our state’s economy. Their longevity sets a standard for excellence and has laid a foundation for each and every company choosing to start or grow here in Indiana today. Each one of these companies is an important part of our history and I’m confident they will play a key role in our state’s future.”

The Governor’s Century and Half Century Business Awards honor Hoosier businesses that have remained in operation for a minimum of 100 or 50 consecutive years and have also demonstrated a commitment to community service. More than 1,400 companies from across the state have been recognized during the 25-year history of the award.

The Century Award honorees for 2015 are:

• AT&T (Indiana Bell) (137 years), Marion County
• Curry Auto Center Inc. (101 years), Monroe County
• Flint & Walling Inc. (150 years), Noble County
• Fred Toenges Shoes & Pedorthics (124 years), Allen County
• Hofer and Davis Inc. (101 years), Allen County
• Industrial Supply Company (100 years), Vigo County
• Lake City Bank (144 years), Kosciusko County
• L.H. Sturm Hardware Co. (121 years), Dubois County
• One America Financial Partners (139 years), Marion County
• Peerless Cleaners (101 years), Allen County
• Welch & Cornett Funeral Home (100 years), Greene County
• Wolf Corporation (144 years), Allen County

The Half Century Award honorees for 2015 are:

• Acro Engineering (53 years), Decatur County
• Amick Welding Inc. (84 years), Huntington County
• Bastian Solutions LLC (63 years), Hamilton County
• Colligan and Company Inc. (87 years), Allen County
• Cunningham Patterns and Engineering (51 years), Bartholomew County
• Imagineering Finishing Technologies (56 years), St. Joseph County
• Keller Development Inc. (59 years), Allen County
• Kimball Electronics Inc. (54 years), Dubois County
• Pyromation Inc. (54 years), Allen County
• Rumbaugh Dentistry (64 years), Allen County
• Schnitzebank Restaurant (54 years), Dubois County
• Superior LLC (54 years), Lake County
• Ward Corporation (52 years), Allen County

Applications for the Governor’s Century and Half Century Awards are available online.