Opinion
22732-19
03-25-2024
JAMES P. CARNEY, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Patrick J. Urda, Judge
This case is scheduled for trial during the Court's special trial session in Boston, Massachusetts, which begins on June 10, 2024. Petitioner James P. Carney contests a notice of deficiency issued by the Internal Revenue Service, which determined deficiencies exceeding $3 million for his 2013 through 2015 tax years. [Doc. 1 at 6; Doc. 3 at 5; Doc. 30.] In each of these years, Mr. Carney claimed deductions stemming from his ownership interest in a yacht, which was used for, inter alia, charter activities. The IRS disallowed the underlying deductions, determining that the "yachting activities lacked a profit motive under section 183." [Id. at 8.]
Unless otherwise indicated, statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times, and Rule references are to the Tax Court Rules of Practice and Procedure.
Mr. Carney has moved for summary judgment, contending that no genuine issues of fact remain as to whether the yacht operation in which he was involved was engaged in for profit under section 183. [Doc. 77 at 53-90.] Mr. Carney further argues that the undisputed facts compel summary judgment in his favor on the issue raised in the Commissioner's amendment to answer with respect to a constructive dividend that Mr. Carney purportedly received. [Id. at 91-98.]
Neither issue is amenable to summary adjudication. See Rule 121(a). "Whether the requisite profit objective exists is determined by looking at the surrounding facts and circumstances." Sherman v. Commissioner, T.C. Memo. 2023-63, at *9; Strode v. Commissioner, T.C. Memo. 2015-117, at *10 ("To ascertain a taxpayer's motive, we conduct 'a careful analysis of all the surrounding objective facts, and greater weight is given to such facts than to his mere statement of intent.'") (quoting Dreicer v. Commissioner, 78 T.C. 642, 645 (1982)). There are numerous open questions and factual disputes bearing on whether the yachting activity was undertaken with an eye for profit, making summary judgment on this point unsuitable.
The constructive dividend issue also implicates questions of fact that are not appropriate for summary judgment. A constructive dividend exists when the distribution was primarily for the benefit of the shareholder, see, e.g., Hood v. Commissioner, 115 T.C. 172, 180 (2000), a test which requires a close analysis of benefits and justifications. See, e.g., Crosby v. United States, 496 F.2d 1384, 1389 (5th Cir. 1974) ("The line between primarily for shareholder benefit and primarily for corporate benefit is often a difficult one to draw."). Whether Mr. Carney received a constructive dividend involves disputed issues of fact, and the resolution of this issue is best reserved for trial.
It is therefore
ORDERED that Mr. Carney's motion for summary judgment, filed on October 18, 2023, is denied.