Petition for Writ of Certiorari — Anthony Italo Provitola, et ux., Petitioners v. Commissioner of Internal Revenue

15

APPENDIX A: Pet.App.l

[DO NOT PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

No. 20-12615

Non-Argument Calendar

Agency No. 12357-16

ANTHONY ITALO PROVITOLA

KATHLEEN A. PROVITOLA,

Petitioners-AppeUants,

versus

COMMISSIONER OF INTERNAL REVENUE,

Respondent-Appellee.

Petition for Review of a Decision of the

U.S. Tax Court

(June 11, 2021)

Before ROSENBAUM, LAGOA and BRASHER, Circuit

Judges.

PER CURIAM:

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Pet.App.2

[Opinion Page 2]

Anthony Provitola and Kathleen Provitola,

husband and wife proceeding pro se, appeal

decisions of the United States Tax Court finding

them liable for tax deficiencies for the years 2013

and 2014 and imposing accuracy-related penalties

under 26 U.S.C. § 6662. The Tax Court determined,

after a bench trial, that the Commissioner of the

Internal Revenue Service (“IRS”) properly

disallowed business deductions the Provitolas

claimed on their joint 2013 and 2014 income-tax

returns because their company, Viovision Ventures

LLC (“Viovision”), was still in the startup phase and

not yet an active trade or business. Finding no error

in the Tax Court’s findings of fact or conclusions of

law, we affirm.

I.

The relevant facts are largely undisputed. The

Provitolas are husband and wife and were married at

all relevant times. Anthony is an inventor and

registered patent attorney. He practices law through

his firm Anthony I. Provitola, PA (“APPA”), an S

corporation of which he is the sole member and

owner.

In 2003, Anthony began pursuing an insight about

visual perception. By 2005, he had developed a

visual system that allowed certain viewers to see a

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Pet.App.3

standard two-dimensional television image as three

dimensional. Between 2005 and 2007, he sought and

obtained several patents for the visual system. Then,

in 2007, the Provitolas formed Viovis ion to develop,

manufacture, and market a device that used

[Opinion Page 3]

his visual system. Since then, Anthony has provided

management, product development, and productdesign services to Viovision, all through APPA.

Between 2007 and 2015, Anthony tested,

experimented with, and further developed the

television device “to bring the system to a

manufacturable state.” He testified that during the

years at issue (2013 and 2014), Viovision required

a tremendous amount of work related to design,

sourcing of materials, and researching potential

patent issues. Viovision produced its first inventory

of the device in 2015. Meanwhile, Anthony hired

third parties to create a pricing system and develop

a website through which Viovision eventually could

market and sell the device. The website was created

in 2016 and 2017, but it was not accessible to the

public through the time of trial. Viovision had not

attempted to market or sell any products at the time

of trial in 2019, as Anthony was still working

through pricing and other issues.

II.

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Pet.App.4

Our focus here is on the years 2013 and 2014.

Viovision did not report any income or expenses

until 2013. In January 2013, APPA billed Viovision

for five years of services provided by Anthony.

APPA billed Viovision $12,000 per year for 2009

through 2013, for a total balance of $60,000. Then,

in January 2014, APPA billed Viovision an

additional $12,000. The Provitolas capitalized

Viovision to pay APPA, which then paid Anthony.

[Opinion Page 4]

The Provitolas filed joint income-tax returns

for the years 2013 and 2014. In their 2013 return,

they included a Schedule C (Profit or Loss from

Business) for Viovision, claiming a $36,000

deduction for expenses Viovision paid to APPA for

Anthony’s “legal and professional services.” The

Provitolas’ 2014 return similarly deducted

Viovision’s payments to APPA on Schedule C, with

$22,000 categorized as legal and professional fees,

and $20,326 categorized as “other expenses.”

In separate notices of deficiency dated

December 31, 2013, and December 31, 2104, the

IRS disallowed the claimed deductions because, in

its view, the Provitolas did not establish that the

business expenses were paid or incurred during the

taxable year or that they were “ordinary or

necessary.” The notices determined income-tax

deficiencies of $7,818 (2013) and $11,328 (2014)

and imposed accuracy-related penalties of $ 1,536.60

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Pet.App.5

(2013) and $2,265.60 (2014). See 26 U.S.C. § 6662.

The Provitolas timely petitioned the Tax

Court for review of the 2013 and 2014 notices of

deficiency on May 20, 2016, and July 31, 2017,

respectively. They then moved for summary

judgment in both cases. The Tax Court denied the

motions, citing the existence of disputed factual

issues and the need for more evidentiary

development. The factual issues, according to a

November 7, 2017, order denying summary

judgment, included “whether petitioners engaged in

the Schedule C activity with an actual and honest

profit motive” and “whether the legal and

professional services fees paid by petitioners were

ordinary and necessary

[Opinion Page 5]

expenses.” After the cases were consolidated in

2018, the Provitolas again moved for summary

judgment, but the Tax Court denied the motion.

The Tax Court held a bench trial, at which

Anthony was the sole witness. The Tax Court then

made oral findings sustaining the notices of

deficiency and the accuracy-related penalties. The

court explained that taxpayers may deduct ordinary

and necessary expenses paid or incurred in carrying

on any trade or business if business activities have

commenced, but that expenses for a business that is

still in the start-up phase are not “ordinary and

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Pet.App.6

necessary” expenses to the business and are

therefore not deductible under 26 U.S.C. § 162(a).

So according to the court, no deduction was

available unless Viovision had “begun an active

trade or business.” And although Viovision took

“significant steps to prepare for the business of

selling Mr. Provitola’s invention,” the court found

that it had not yet engaged in an active trade or

business in 2013 and 2014 because it had not

“attempted to market or sell a product,” “made any

sales,” or “made its website public.”

Next, the Tax Court next held that the

accuracy-related penalties applied. The court

observed that the amount of taxpayers’

understatement of income satisfied the statutory

threshold for the penalties under 26 U.S.C. § 6662,

and it found that the Provitolas had failed to

demonstrate that any affirmative defense applied.

[Opinion Page 6]

The Tax Court entered written decisions

sustaining the tax deficiencies and penalties. The

Provitolas timely appealed.

II.

The Provitolas first argue that the Tax Court

erred in denying their pretrial summary-judgment

motions. In their view, the Tax Court, in its

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Pet.App.7

November 7,2017, order denying one such motion,

narrowed the issues in the case to “whether the

Petitioners engaged in Schedule C activity with an

actual and honest profit motive.” They say that the

IRS failed to rebut their evidence on this point, so

summary judgment should have been granted, but

instead the Tax Court violated law of the case by

permitting the IRS to argue the new theory of start­

up expenses at trial.

The denials of the Provitolas’ pretrial

summary-judgment motions are not reviewable on

appeal. In Lind v. United Parcel Service, Inc., we

held that “the denial of summary judgment is not

reviewable on appeal after a full trial and final

judgment on the merits.” 254 F.3d 1281, 1284-86

(11th Cir. 2001). Because the Tax Court entered

judgment on the merits after a full trial, we “will not

review the pretrial denial of a motion for summary

judgment.” Id. The Provitolas’ argument that this

[Opinion Page 7]

rule applies only to jury trials is not persuasive

because Lind itself applied that rule in an appeal

arising from a bench trial. See id. at 1283.

Nor do we find persuasive the Provitolas’

law-of-the-case argument. The order that the

Provitolas claim limited the issues in the case listed

multiple triable issues, not just the one they quote.

Those issues included “whether the legal and

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Pet.App.8

professional services fees paid by petitioners were

ordinary and necessary expenses.” So even if we

assume that this order established law of the case,

the Tax Court acted within the order’s scope when

it concluded that the expenses were not “ordinary

and necessary” because Viovision was not yet an

active business.

III.

Next, the Provitolas contend that the Tax

Court erred by imposing a “product sale”

requirement for a manufacturing business to exist

beyond the start-up phase. They argue that

Viovision was in the business of both manufacturing

and marketing, and they assert that Viovision’s

manufacturing business was active during 2013 and

2014 because it was manufacturing product

components that were “ultimately incorporated in

the assembly and packaging runs in 2015.”

We review the Tax Court’s application of the

tax code de novo and its findings of fact for clear

error. Campbell v. Comm V ofInternal Revenue, 658

F.3d 1255, 1258 (11th Cir. 2011). An income-tax

deduction is a matter of legislative grace, and

[Opinion Page 8]

the taxpayer bears the burden of clearly showing the

right to a claimed deduction. INDOPCO, Inc. v.

Comm’r of Internal Revenue, 503 U.S. 79, 84

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Pet.App.9

(1992).

Section 162 of the Internal Revenue Code

allows as a deduction “all the ordinary and

necessary expenses paid or incurred during the

taxable year in carrying on any trade or business.”

26 U.S.C. § 162(a). “The phrase ‘trade or business’

presupposes an existing trade or business.” Stanton

v. Comm’r of Internal Revenue, 399 F.2d 326, 329

(5th Cir. 1968).2So § 162(a) “does not allow current

deductions for expenses incurred by a taxpayer prior

to beginning business operations.” Sorrell v.

Comm’r of Internal Revenue, 882 F.2d 484, 486

(11th Cir. 1989) (“[P]rior to the business’s

beginning to operate as a going concern, the

taxpayer is not engaged in carrying on any trade or

business.” (quotation marks omitted)).

Moreover, such “pre-opening” or “start-up”

expenses are not “ordinary” expenses because they

are considered “capital in nature, given that they

spring from the taxpayer’s efforts to create or

acquire a capital asset.” Id. at 488; see Comm’r of

Internal Revenue v. Tellier, 383 U.S. 687, 689-90

(1966) (“The principal function of the term

‘ordinary’ in § 162(a) is to clarify the distinction,

often difficult, between those expenses that are

currently deductible and those that are in the nature

of capital expenditures, which, if deductible at all,

must be amortized over the useful life of

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Pet.App.10

[Opinion Page 9]

the asset.”)* This understanding is reflected in 26

U.S.C. § 195, which provides that “no deduction

shall be allowed for start-up expenditures,” except

through amortization once “the active trade or

business begins.” See 26 U.S.C. § 195(b).

The determination of when a trade or business

begins presents a question of fact requiring an

examination of all the relevant facts. Stanton, 399

F.2d at 330. An active or existing trade or business

is generally one that is “perform[ing] those activities

for which it was organized,” not simply taking steps

in preparation to perform those activities. Richmond

Television Corp. v. United States, 345 F.2d 901,907

(4th Cir. 1965), vacated on other grounds, 382 U.S.

68 (1965); see also Jackson v. Comm’r of Internal

Revenue, 864 F.2d 1521, 1526 (10th Cir. 1989)

(“Taxpayers’ activities in this case clearly did not

rise to the level of a functioning business, and

taxpayers did not perform the ultimate activity for

which their business was organized—attempting to

sell player/recorders.”).

Here, the record amply supports the Tax

Court’s finding that the Provitolas were not yet

carrying on a “trade or business” through Viovision

in 2013 or 2014. See 26 U.S.C. § 162(a); Sorrell,

882 F.2d at 486; Stanton* 399 F.2d at 330. It is

undisputed that the Provitolas created Viovision to

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Pet.App.ll

profit from Anthony’s invention

[Opinion Page 10]

by manufacturing and marketing a device to enhance

the television viewing experience. Yet, according to

Anthony’s own testimony, Viovision was still

engaged in the process of “creating the

manufacturable item” in 2014 and did not produce

its first units until 2015, after the tax years at issue.

In addition, Viovision’s website did not exist until

2015, and it had not sold any products as of the trial

in 2019. Thus, whether viewed as a manufacturing

business or a marketing or retail business, or both,

Viovision had not begun “to operate as a going

concern” in 2013 and 2014 because it had not yet

manufactured or sold any of the devices, the

purposes for which it was organized. See Sorrell,

882 F.2d at 486. While Anthony undertook

substantial activity to prepare for the business of

manufacturing and selling the device during that

time, such expenses are not “ordinary” business

expenses but rather in the nature of capital

expenditures, which may be amortized once “the

active trade or business begins.” See id. at 486,488;

26U.S.C. § 195(b).

In sum, the Tax Court did not clearly err in

finding that Viovision’s expenses, as claimed on the

Provitolas’ 2013 and 2014 tax returns, were not

deductible under § 162(a) as ordinary and necessary

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Pet.App.12

expenses paid or incurred in carrying on a trade or

business. See Campbell, 658 F.3d at 1258. The Tax

Court thus properly affirmed the Commissioner’s

disallowances. And because the Provitolas have not

raised on appeal any independent arguments

challenging the 26 U.S.C. § 6662(a) penalties, they

have abandoned any such issues. See Timson v.

Sampson, 518 F.3d 870, 874

[Opinion Page 11]

(11th Cir. 2008) (stating that issues not briefed on

appeal by pro se litigants are deemed abandoned).

We accordingly affirm the decisions of the Tax

Court.

AFFIRMED. [FOOTNOTES OMITTED]

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APPENDIX B: Pet.App.13

UNITED STATES TAX COURT

WASHINGTON, DC 20217

ANTHONY I. PROVITOLA &

KATHLEEN A. PROVITOLA

Petitioners,

v.

)

)

)

)

)

) Docket No.

) 12357-16.

COMMISSIONER OF INTERNAL )

REVENUE,

)

Respondent

)

)

ORDER

On September 29,2017, petitioners filed a Motion

for Summary Judgment. Thereafter, on October 23,

2017, respondent filed a Notice of Objection to

petitioners’ motion for summary judgment.

Petitioners, as the moving parties, bear the

burden of proving that there is no genuine dispute as to

any material fact and that petitioners are entitled to

judgment as a matter of law. Rule 121(b), Tax Court

Rules of Practice and Procedure; see also Sundstrand

Corp. v. Commissioner. 98 T.C. 518, 520 (1992) affd, 17

F.3d965 (7th Cir. 1994); Naftel v. Commissioner, 85 T.C.

527, 529 (1985). In deciding whether to grant

summaryjudgment, the factual materials and the

inferences drawn from them must be considered in the

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Pet.App.14

light most favorable to the nonmoving party. See FPL

Group. Inc. & Subs, v. Commissioner. 115T.C.554 (2000);

Bond v. Commissioner. 100 T.C. 32, 36 (1993).

Upon review of the record in this case, drawing

factual inferences against petitioners as the moving

parties, we conclude that there are material issues of

fact in dispute at this juncture of the litigation, e.g.,

whether petitioners engaged in the Schedule C activity

with an actual and honest profit motive, whether

petitioners actually incurred legal fees for the purposes

of Internal Revenue Code section 162 and, if so, whether

the legal and professional services fees paid by

petitioners were ordinary and necessary expenses.

Thus, at this time, it appears this case requires more

evidentiary development. Evidence is received by the

Court by means of the stipulation and trial process, not

through pleadings such as the petition, answer, and any

reply. See Rules 91 and 143, Tax Court Rules of Practice

and Procedure.

Upon due consideration, it is

ORDERED that petitioners' Motion for Summary

Judgment, filed September 29,2017, is denied.

(Signed) L. Paige Marvel

Judge

Dated: Washington, D.C.

November 7,2017

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APPENDIX C: Pet.App.15

Rule 56(a) - Summary Judgment

Motion for Summary Judgment or Partial Summary

Judgment. A party may move for summary judgment,

identifying each claim or defense — or the part of each

claim or defense

on which summary judgment is

sought. The court shall grant summary judgment if the

movant shows that there is no genuine dispute as to any

material fact and the movant is entitled to judgment as

a matter of law. The court should state on the record the

reasons for granting or denying the motion.

1

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APPENDIX D: Pet.App.16

26 U.S. Code § 162 - Trade pr business expenses

(a) In generalThere shall bp allowed as a deduction all

the ordinary and necessary expenses paid or incurred

during the taxable year in carrying on any trade or

business, including—

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