Tax Roundup, 8/28/2013: Saxes and day jobs edition.

August 28th, 2013 by Joe Kristan

20130828-1Keep a day job.  And good records.  A sax player recently had to justify his career choice in Tax Court.  Tom Carswell was working in Chicago for awhile, until he moved to Wisconsin, where he got a computer programming job while keeping a hand in the business: 

Since moving to Wisconsin petitioner has organized the Driftless Jazz Festival in Southwestern Wisconsin and has recorded four compact disks (CDs), including “Catharsis” in 2006 and “Carswell” in 2009. “Carswell” was advertized in the May 2010 edition of JAZZed Magazine.

The Wisconsin years weren’t lucrative:

The following table reflects his gross receipts and net losses from his musical activities:

      Year                Gross receipts                Net loss

      2004                     $1,483                    $12,163
      2005                        530                     11,842
      2006                        983                     17,872
      2007                      1,615                     20,315
      2008                      2,625                     32,541
      2009                      2,931                     26,003
      2010                      3,154                      9,467

      Total                    13,321                    130,203

As is their way, the IRS jumped to the conclusion that the sax playing was a hobby, not a for-profit activity.  Judge Kerrigan explains the law (citations omitted):

We are satisfied that petitioner’s musical activities were conducted with continuity and regularity during the years in issue. Nevertheless, a taxpayer must conduct the activity with the requisite profit motive or intent for the activity to be considered a trade or business. The taxpayer generally bears the burden of proving that the requisite profit objective existed.

Apparently our Sax Man has talents in addition to jazz.  He convinced the judge that he was, in fact, trying to make money:

Petitioner had a series of losses from 2004 to 2010 and a small profit in 2011. Respondent contends that petitioner’s small profit in 2011 could not offset years of sustained losses that total over $100,000; however, petitioner was able to explain these losses. The music industry changed, and petitioner’s focus moved from performance to original composition and other aspects of music. Petitioner contends that he made adjustments and retooled his career and that he was profitable in 2011…

After considering all the facts and circumstances, we hold that petitioner was engaged in the trade or business of music during the years in issue.

The Sax Man would never have won if he didn’t have the records to support his expenses in the first place.  If he didn’t have the mileage and other records, the IRS would have won on substantiation grounds.

As my oldest son is embarking on a career as a professional musician, I can only hope he doesn’t incur six figures in losses before he figures out a profitable business model.

Cite: Gullion, T.C. Summ. Op. 2013-65


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Jack Townsend, Sentencing, Redemption and Predicting the Future:

Paroles can permit someone to take a later look to see if there mitigating factors exist that could not be known to the judge in fashioning a sentence, even with Booker discretion.  Judges do not always predict the future well. 


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Joseph Thorndike, Can Debt Ceiling Debates Be Useful? History Says Maybe. (Tax Analysts Blog):

But the 1953 experience underscores the way in which debt limit debates have historically been used to focus the nation’s political attention on fiscal policy. That leverage has always entailed certain risks. But it’s also been successful – at least once.

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