IRS Loses In Tax Court Failing To Find The Primary Issue On Family Ranch’s Tax Return

Most taxpayers are overwhelmed at the thought of being taken to court by the IRS, which has a track record of winning a high percentage of their cases. However, as a case from earlier this month demonstrated, even the IRS occasionally makes mistakes that leaves taxpayers free of the charges they were facing. Representation from a leading tax attorney in Arizona is an essential way to protect yourself and your rights if you’re facing charges from the IRS.

Tax Court

IRS Misses Real Issue In Carson v. Commissioner

The IRS lost a big case recently when the Tax Court ruled in favor of the defendant in Carson v. Commissioner. The IRS alleged that the activity on the defendant’s Schedule F was not conducted for profit and therefore the deductions on the taxpayer’s returns should not have been allowed. After the ruling, the IRS faced backlash because the agency failed to properly assess the tax return and therefore missed the actual issues which would have potentially left the defendant with additional tax obligations. Instead, they misunderstood the tax return and prosecuted non-issues.

IRS Builds Wrong Focus On Schedule F & Trust Expenses

In 2009, Ms. Carson transferred a family ranch that generates income primarily through the sale of cattle into a revocable trust that she controls as long as she is living. She entered into agreements with her living mother and other family members as to who would contribute financially to the ranch and who would retain control of the ranch depending on the order of their deaths.

Ms. Carson’s mother, Mrs. Carson, made substantial financial contributions to the ranch that paid its expenses. The sale of the cattle and other income from the ranch was reported on Mrs. Carson’s tax returns but not on the tax returns of Ms. Carson or her brother due to their agreements of who would fund the ranch’s expenses.

In most cases, the IRS would raise questions as to whether this arrangement was considered a partnership, whether the business was genuine, or whether the expenses that were being paid were actual expenses of the trust. Instead, the IRS decided to investigate the activities of Ms. Carson’s children and their rodeo involvement with ranch assets. Instead of focusing on the complicated issues concerning the validity of the trust and how the income should have been reported, the IRS took the Carsons to Tax Court over claimed losses.

Prosecution Of The Wrong Issue Leads To IRS Loss

The Carsons incurred significant tax losses due to a rodeo involvement arrangement that was designed to prevent them from receiving any income through the ranch. The IRS could have focused on this issue and argued that their ranch was not conducting any legitimate business activity. Instead, the IRS examining agent determining that the activity that was reported was rodeo activity, not ranching activity and therefore not ranch income. The IRS mistakenly asserted that the purpose of the ranch was to fund their children’s rodeo activities.

The real issues at play in the situation were whether the Carsons’ activities were a legitimate business and whether it was being conducted with the intention of obtaining a profit. Because they failed to investigate and analyze the full information regarding the Carsons’ ranching and rodeo activity prior to the trial, the judge did not allow the agency to shift the focus of their case after additional information became available at the trial.

In their conclusion, the Tax Court recognized that there were potential concerns regarding the ranching and rodeo relationships, but emphasized that the IRS did not thoroughly investigate the full situation or recognize the significant additional issues with the defendant’s Schedule F, resulting a loss for the IRS.

Arizona’s Leading Tax Attorneys Are Ready To Defend You

If you’re facing an audit or prosecution from the IRS, don’t try to defend yourself. You need the expertise and experience of Silver Law, PLC, Arizona’s trusted tax attorney firm. All of our attorneys are former IRS employees who use their knowledge and experience to provide aggressive defense and protection of your rights to promote the best possible outcome of your tax case. Let us give you the legal advice and representation you need against the IRS. Contact Silver Law, PLC, today to schedule your confidential consultation.

Silver Law PLC Logo


Arizona Location
7033 E. Greenway Pkwy, Ste 200
Scottsdale, AZ 85254


Nevada Location
410 South Rampart Blvd, Suite 390
Las Vegas, Nevada 89145

Office: 702-318-7130

Henderson Location
170 S. Green Valley Parkway
Suite 300 Henderson, NV 89012

San Diego Location
1373 Grand Avenue,
San Diego, CA 92109

| Leave a comment

Leave a Reply

2024 badge for Best Lawyers in USA 2023 badge for Best Lawyers in USA 2022 badge for Best Lawyers in USA 2021 badge for Best Lawyers in USA 2020 badge for Best Lawyers in USA 2019 badge for Best Lawyers in USA 2018 badge top-tier Scottsdale tax lawyers at Silver Law PLC best-law-firm-award-2017 Silver Tax Law best tax lawyers in America 2016 Silver Tax Law best tax lawyers in America 2015