# T .C . Memo . 2010-19 8 > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/agency%3Atax-court%3A100e193babf327f2 ## Record - **Collection:** Agency decision - **Document type:** Agency decision ## Text T .C . Memo . 2010-19 8 UNITED STATES TAX COUR T WILLIAM J . DUNN, Petitioner v . OMMISSIONER OF INTERNAL REVENUE, Responden t Docket No . 17290-06 . Filed September 13, 2010 . Frank J . Yong and J . Ellsworth Summers , Jr . , fo r petitioner . I Jeffrejr S . Luechtefeld , for respondent . 'Petitioner was represented by Elizabeth Opalka when he filed his petition . On Jan . 3, 2007, Donald W . Wallis was substituted for Ms . Opalka as counsel for petitioner . On Sept . 21, 2009, Frank J . Yong was substituted for Mr . Wallis as counsel for petitioner . SERVED EP 1 2U1 MEMORANDUM FINDINGS OF FACT AND OPINION THORNTON, Judge : Respondent determined the following deficiencies in and penalties on petitioner's Federal income taxes : Year Deficiency Accuracy-Related Penalt y Sec . 6662(a) . 2002' 2003 2004 $177,658 140,820 192,463 $35,53 2 28,16 4 38,49 3 The issues for decision are : (1) Whether petitioner i s entitled to deduct expenses , mostly relating to airplane rentals, use, and maintenance , incurred by his wholly owned S corporation , Dunn Property Management, Inc . . (DPM) ; (2) whether petitioner' s pass-through . losses from DPM and his single- member limite d liability company, Dunn Equipment Leasing, L . L .C . (DEL), ar e subject to the passive activity loss restrictionsrof section 469 ;,; and (3) whether petitioner is liable for a ,section 6662(a ) accuracy-related penalty for each year at issue . 2 FINDINGS .OF FAC T The parties have stipulated some facts, which we so find . When he petitioned the Court, petitioner resided in Florida . 2All section references are to the Internal Revenue Code (Code) in effect for the years at issue, and all Rule references are to the Tax Court Rules of Practice and Procedure . A. 3 Petiti ner's Background = Petiti ner is a 1976 graduate of the U .S . Air Force Academy and a 1980 raduate of Georgetown University Medical School . After servi g some years as an Air Force flight surgeon, in 198 8 he left ac t live duty for the private practice of-ophthalmology i n Bangor, Ma i ie . While working and living there with his family, he commuted in his private plane to Cleveland, Ohio, for a fellowship'program in retina and vitreous surgery . Since 1991 he has been em~loyed as a retinologist by the Florida Retina Institute, ~ .A . (FRI), a Florida professional corporation o f which he is a vice .president and shareholder . FRI has a number of offices throughout northeast Florida and Georgia . Petitioner's medical practice is concentrated primarily in FRI's Daytona Beach office, which is in the general vicinity of his resilence, and in Palm Coast, a short distance away . Petitioner ypically works at FRI about 4-1/2 days each week and takes 6 to weeks of vacation each year . In addition to practicing medicine with,FRI, petitioner participate in drug treatment studies for two major drug companies a d serves on their advisory boards . Sometimes he travels to Miami or Atlanta to participate in these advisory boards . Th se companies pay petitioner consultant's fees and reimburse h ;s travel expenses, typically on the basis of airline As described more fully below, during the years at issu e petitioner . also pursued aviation interests and real estat e activities . B. Petitioner's Aviation Interest s _ . Petitioner,has been an aviation enthusiast since childhood . At age, 14 he took his first flying lesson, and at ageY17--th e youngest age permitted by the Federal Aviation Administratio n (FAA), :--he obtained his private pilot' s-license . At the,Air Forc e a Academy he frequently flew military aircraft, and he completed pilot .., indoctrination course . In 1986 petitioner purchased-,Meiners testified that these flight logs were a "logbook format that we provide to our clients as an example of what they can use to meet th e documentati n requirements ." It appears, however, that the Meiners firm accepted at face value petitioner's characterizatio n of all . his lights as business related . Similarly, the evidence indicates that it was petitioner , not his tax advisers, who decided whether to characterize hi s activities as-passive or nonpassive . Meiners testified : "The clientiwoul tell us whether or not it was passive'or nonpassive . * * * We wo ld have to ask the client . We would have no way of knowing without . * * * If the client told us it was passive , s passive . If the client tells us -- you know, w e don't know .unless the client tells us ." Judging from thi s testimony, t appears that on this critical issue the tax advisers re ied upon petitioner, rather than the other wa y around . As pet tioner acknowledges on brief, he is "highly educate d and sophist cated and possesses extensive business experience ." - 46 - Accordingly, , as, petitioner concedes, "the standard-of care tha t must have been exercised by•the .;Petitioner is a high one . are not convinced that petitioner met that high standard of,,,care . We hold that :for each year at issue petitioner is liable for a section 6662(a) penalty insofar-as the Rule 155 calculations, sho w a substantial, understatement of income tax . To reflect the foregoing and respondent 's concessions , under Rule 155 . 47 APPENDIX A DPM Nonrental Loss Deduction s 2002 2003 . 200 4 Repairs & m intenance -- $22,506 $54',591 Rent expens $54,400 27,607 32,058 25 125 600 1 . Taxes & licenses Depreciation -1,056 1,35 3 Other deductions : .3,075 -3,075 Auto' & truck expense 2,038 Avionics 2,630 --Fuel 57,567 55,210 53,143 Landing f Maintenance es permits 3,092 Aircraft 30,575 -- -- -- Real esta e fees 160 --Training 22,850 1,724 1,794 Charts & maps -279 81 Dues,& supscriptions -- 1,045 -Flight planning fees 162 -Hanger rent -6,00 0 Insurance -- 24,310 20,91 0 Legal & professional -- 375 1,300 Management fees -- 1,800 1,800 Meals & entertainment -- 526 261 Miscellaneous -488 430 Oil -58 -Other rent -213 -Ramp & landing fees 179 106 Postage --339 Supplies -46 1,307 Telephone -788 725 Tie down arking -543 770 200 Transportation -200 . -2,263 1,13 4 Travel Total 173,912 150,478 175,502 48 APPENDIX B DPM .Rental Loss-Deduction s 2002 2003 200 4 Advertising $196 -Auto & travel 1,414 $319 -Cleaning & maintenance 692 Commissions 261 4,858 Insurance 4,027 1,773 $1,965 Interest 4,578 21,837 66,883 Repairs -1,118 6,082 Taxes 1,382 14,863 13,529 Utilities 503 1,183 2,087 Depreciation 20,829 33,685 67,228 6,602 14,509 13,36 7 Other deductions Total 40,484 94,145 171,141 --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Atax-court%3A100e193babf327f2. Public record. Not legal advice.