Francis J. & Andrea P. Bogus, Petitioner

T .C . Summary Opinion,2009-160 ;

UNITED STATES TAX COUR T

FRANCIS J . . AND ANDREA P . BOGUS, Petitioners v . COMMISSIONER OF-INTERNAL REVENUE, . Responden t Docket-No . 14809-07S .'- Filed October 19 , . 2009 .

Francis J . Bogus , pro se .

Charles Maurer, Jr . , for respondent .

GOLDBERG, Special Trial Judge :

This case, was heard pursuant to the provisions of section 7463 of the Internal Revenue Code in effect at the time the petition was filed . Pursuant-to section 7463(b),, the decision to .be entered is not reviewable by an y other court, and,this opinion shall not,be,treated as preceden t for any other case . Unless otherwise indicated, subsequent ; section references are to the Internal Revenue Code in effect fo r t

SL O ' .

2flb the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure .

On their joint Federal income tax returns for 2003 and 2004 petitioners reported on Schedule C, Profit or Loss From Business, gross receipts of $44,383 and $31,027, respectively, and total expenses of $121,981 and $116,319, respectively, resulting in losses for 2003 and 2004 of $77,598 and $85,292, respectively .

In the notice of deficiency respondent disallowed losses in excess of gross receipts as passive losses in both years .

Respondent determined a deficiency in petitioners' Federal income taxes of .$14,342 for 2003 and $16,577 for 2004 . The sole issue for decision is whether the passive loss rules of section 469 preclude petitioners from deducting losses incurred from their dog racing activity .

Background Some of the facts have been stipulated and are so found .

The stipulation of facts and the attached exhibits are incorporated herein by this reference . Petitioners resided in Massachusetts when the petition was filed .

During 2003 and 2004 Francis J . Bogus (petitioner) was employed by Verizon as a network technician and typically worked 4 or 5 days per week from 7 :30 a .m . to 4 :30 p .m . Petitione r worked approximately 40 years for Verizon and was retired at th e time of trial .

Ili Petitioner developed an interest in greyhounds approximately 25 years ago . Petitioner was introduced to greyhounds by a friend who also lived in Massachusetts . His friend imported y re hounds from Ireland for resale . Petitioner in itiall purchased two trained greyhounds from his friend . Petitioner then bred these dogs and contracted with professionals to race them at a dog track in Rhode Island . By 2003 petitioner owned approximately 164 . greyhounds, worth an estimated $300,000, . all registered with the National Greyhound Association . Petitione r owned greyhound puppies in Oklahoma and Florida and full-grown greyhounds at approximately 10 different racetracks in multipl e States .

From birth to 12 months of age the greyhound puppies were i n the care of farmers who raised them' . Petitioner personally visited a farm in Florida to check on his puppies on only one occasion and then only because he was taking his children to nearby Disney World . Petitioner maintained contact with the farmers by telephone .

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From 12 to 16 months of age the greyhounds were in the care of trainers who boarded them and trained them to race . Th e trainers would call petitioner to report how the dogs wer e progressing . Petitioner would then determine whether to . race a dog and where the dog should be raced .

ik From 16 months to 5 years of age petitioner's greyhound s raced at one or more tracks . Petitioner contracted with individuals at a number of dog tracks to race his dogs . During the years that .a dog was being raced the dog would be cared for by the individual who was racing the dog . Each greyhound would be assigned a grade, depending on how well it raced . The best grade was AA . When one of petitioner's dogs won a race, petitioner would receive money, the amount of which was determinedliby the grade of the dog and the track where the dog raced . Some race tracks paid better than others . At 5 years of age the greyhounds would be put up for adoption as pets .

Petitioner contracted with professionals to raise, breed, board, train, ship, and race his dogs . In addition to handling contract arrangements, petitioner performed some additional functions .jj Petitioner went to dog . tracks 3 or 4 nights a week for 2 or 3 hours to watch his dogs race live and monitor them for injuries . Most of the time petitioner went to Wonderland Greyhound Park in Revere, Massachusetts, which-is about a 5-minute drive from petitioner's residence . From there petitioner: could also watch his dogs race at tracks all over the country bylr simulcast .

Petitioner purportedly spent 1 hour per day on bookkeeping and administration and 2 or 3 hours a week talking to contractor s by telephone . Additionally, when one of petitioner's femal e II greyhounds would go into heat, he would be notified by telephon e and then would select an appropriate stud from an officia l breeding publication . Petitioner purportedly spent 3 to 5 hour s per month reading professional publications and 5 to 10 minutes per telephone call related to breeding . The record is silent as to how many of these phone calls rook place . Petitioner did not keep an appointment book, calendar, or diary that woul d constitute a narrative summary of this participation-in any facet of his activity .

Petitioner did not breed, raiIse, board, train, ship, or race his dogs personally . Virtually all of the required services were I performed by other individuals under contract . Further, petitioner did . not own any of the facilities where the services were performed . At trial petitioner presented phone bills showing hundreds of telephone call, to out-of-State locations .

Also, petitioner offered into evidence numerous invoices from service providers as well as earnings statements from numerous dog tracks .

Discussio n In general', the Commissioner's determination set forth in a notice of deficiency is presumed colrect, and the taxpayer bears the burden of showing that the determination is in error . Rul e 142(a) ; Welch v . Helvering, 290 U .S 111, 115 '(1933) .

Unde r section 7491(a) the burden may shift to the Commissioner regarding factual matters if the taxpayer produces credible evidence and' meets the other requirements of the section .

Petitioner does not argue that he satisfied the elements for a burden shift, but even if he did advance this argument, petitioner did not produce sufficient evidence to support a burden shift . Accordingly, the burden remains on petitioner to disprove respondent's determinations for 2003 and 2004 .

The passive loss rules of section 469 place limitations on the deduction of losses relating to passive activities ; namely, from activities in which a taxpayer does not materially participate;' . Sec . 469(a)(1) and (2), (c) (1) , (d) (1) . As a general rule, a taxpayer will be regarded as not materially participating in an activity if the taxpayer is not involved in the operation of the activity on a basis which is regular, continuous, and substantial . See sec . 469(h)(1) ; sec . 1 .469- 5T(a), Temporary Income Tax Regs ., 53 Fed . Reg . 5725 (Feb . 25, 1988) .

The temporary regulations . under section 469 contain seve n tests, the, qualification under any one of which will result in a taxpayer's"being treated as materially participating in the activity .,, Sec . 1 .469-5T(a), Temporary Income Tax Regs ., supra .

Of the seven tests, petitioner presented evidence and made general arguments that aro applicable only to the tests found in section 1 .469 - 5T(a)( .1 ) and (7), Temporary Income Tax Regs ., supra , which provide that a taxpayer shall be treated as materially participating in an activity if he participates in th e activity for more than 500 hours du ing such year, or if, on th e r basis of all the facts and circumstances, the taxpayer participates in the activity on a regular, continuous, and .

substantial basis during the taxable year .

A taxpayer may establish the etent of his or her participation in a particular activity .by any reasonable means and has the burden of proving material participation in the activity . Rule 142(a) ; sec . 1 .469-5T(f)(4), Temporary Income Tax Regs ., 53 Fed . Reg . 5727 (Feb . 25, 1988) . The method of proof , set out in section 1 .469-5T(f)(4), Temporary Income Tax Regs .

, su ra, is quite lenient, letting taxpayers prove their time spent by "any reasonable means ." Reasonable means are not limited t o "Contemporaneous daily time reports, logs, or similar documents " but include "the identification of services performed over a period of time and the approximate number of hours spent performing such services during such period, based on appointment books, calendars, or narrative summaries ."

Id . ; see Mowafi v .

Commissioner , T .C . Memo . 2001-111 . But despite its apparent leniency, this section of the regulations does not require us t o .believe a "ballpark guesstimate"'of the time spent on differen t activities .

Lee v . Commissioner , T .'C . Memo . 2006-193 ; Bailey 8 - Commissioner , T .C . Memo . 2001-296 ; Carlstedt v . Commissioner , T .C . Memo . 1997-331 ; Speer v . Commissioner , T .C . Memo . 1996-323 ; Goshorn v .-Commissioner , T .C . Memo . 1,993-578 .

Petitioner alleges that he materially participated in his dog racingi,activity by : (1) Going to dog tracks and watching his dogs race while monitoring them for injuries for a minimum of 312 and a maximum of 624 hours per year ; (2) performing bookkeeping and administrative functions for 365 hours per year ; (3) talking to contracltors on the telephone for a minimum of 104 and a maximum of 156 hours per year ; and (4) spending a minimum of 36 and a maximum of 60 hours per year reading breeding publications such as those published by the Massachusetts Greyhound Association . Therefore, in total, petitioner alleges that he participated in this activity for a minimum of 817 and a maximum of 1,205 hours per year .

Petitioner attempts to come within the provisions of section 1 .469-5T(f)(4), Temporary Income Tax Regs ., supra , by relying on his own testimony and exhibits such as invoices for service s rendered by the National Greyhound Association and other service providers, , earnings reports from numerous dog tracks, and telephone bills . Petitioner's vague time estimates and supporting documentation do not constitute a "narrative summary" of petitioner's participation in this activity . Further, petitioner failed to call any witnesses who could corroborate his I testimony regarding the number of hours he estimated he spen t participating in . the activity .

As previously noted, petitioner did not keep a diary , appointment book, calendar, or any other similar type of recor d of his participation in the activity . We are left with petitioner's self-serving testimony and exhibits that, when viewed in the most. favorable light, fail`to prove that . petitione r materially participated in this activity and, when viewed in the least favorable light, support respondent's position that this is a passive activity . "The Court is not bound to accept th e unverified, undocumented testimony of taxpayers, and we declin e to do so in the instant case ."

Carlstedt v . Commissioner , supr a (citing Hradesky v . Commissioner , 65 T .C . 87, 90 (1975), affd .

per curiam 540 F .2d 821 (5th Cir . 1976)) .

We believe that petitioner was regularly involved in hi s activity for profit but, unfortunately , was unable to demonstrate and corroborate his material and substantial participation .

Petitioner could have maintained a calendar , appointment book, diary , or other record of his participation in the activity to enable him to meet his burden of prof .

Lastly , we believe that having been engaged in greyhound dog racing for over 25 years , petitioner has found trustworthy and experienced individuals t o I breed, raise, board, train, and race his greyhounds . It woul d follow that this would require less ;material participation by N petitioner than if he were just starting the activity an d learning how to operate the business . Therefore, on the basis of the entire,,record, we hold that petitioner has not met his burden of proving ;, that he has materially and substantially participated in the activity in question, and respondent's determinations are sustained .,; To reflect the foregoing, .

Decision will be entere d for respondent.

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