SOMETIMES IT'S JUST A HOBBY

Parents' involvement in their children's activities is usually good. But they shouldn't expect the IRS to consider it a legitimate part of their business.

Many parents support their children by attending concerts, plays, sporting events and other activities that interest young people. Some parents even provide financial support by purchasing advertisements in programs, signs at events and team sponsorships. Those parents who own a business may even gain some tax advantage by claiming a business expense deduction for advertising costs.

As described in a recent Tax Court case, one father took this effort to a new level (Robin Trupp v. Commissioner, T.C. Memo 2012-108, April 12, 2012).

Robin Trupp is a lawyer and former equestrian who was once considered for the U.S. Olympic Team. His son began to ride in equestrian shows at the age of 12, and Trupp found himself drawn back into the sport. He attended his son's shows, served as president of an equestrian organization for two years and began to take on clients in the equine industry as part of his law practice.

Trupp would usually arrive for his son's shows on Thursday night or Friday morning and stay until Sunday. Others in the equine industry knew he was an attorney and sometimes approached him at shows to discuss legal issues. He developed a number of clients in this fashion.

Rather than purchase formal advertising, Trupp watched his son ride and relied on word of mouth spreading when his son placed highly in an event. Trupp testified that, when he attended events in which his son did not participate, he received no client inquiries. He even agreed to pay the equestrian-related expenses of those who allowed his son to ride their horses at shows.

Trupp claimed over $70,000 of "business promotion expenses," including payments made for horseshoes, boarding, feeding, grooming, transportation, housing for the horses and various people on the farms, supplements, lessons and insurance. The burden of proof was on Trupp to show credible evidence that these were expenses incurred as a part of a marketing campaign for his law practice.

The IRS concluded, and the court agreed, that Trupp's deduction for his equestrian expenses should be disallowed under the so-called "hobby loss" rules.

Trupp argued that his equestrian activity was integrally related to his law practice. But the court found that Trupp did not engage in the activity for profit.

 
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