Opinion
10336-18
12-07-2021
Carl L. Gregory & Leila Gregory, Petitioners v. Commissioner of Internal Revenue, Respondent
ORDER
COURTNEY D. JONES, JUDGE
On March 6, 2020, petitioners filed a motion for partial summary judgment (MPSJ), asking the Court to hold as a matter of law that the deduction permitted under section 183(b) for activities not engaged in for profit is not subject to section 67(a)'s 2 percent floor on miscellaneous itemized deductions (docket entry no. 26). Respondent filed a response on June 5, 2020 (docket entry no. 36). Thereafter, petitioners had additional opportunities to present their arguments to the Court (docket entry nos. 40, 44).
Unless indicated otherwise, all section references are to the Internal Revenue Code (Code) in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure.
On September 29, 2021, the Court filed Memorandum Opinion 2021-115, in which we ruled that section 183(b) is a miscellaneous itemized deduction. See Gregory v. Commissioner, T.C. Memo. 2021-115. Accordingly, we denied petitioners' MPSJ (docket entry no. 46). On October 28, 2021, petitioners timely filed, pursuant to Rule 161, a motion for reconsideration of our order denying their MPSJ (docket entry no. 49). Respondent filed an objection (docket entry no. 51).
For the reasons discussed below, we will deny petitioners' motion.
Background
In their MPSJ, petitioners' primary position was that the deduction provided under section 183(b) is properly applied against gross income in calculating adjusted gross income. See MPSJ at page 5. Though not defined in the Code, a deduction applied in calculating adjusted gross income is colloquially referred to as an "above-the-line" deduction. See Gregory v. Commissioner, T.C. Memo. 2021-115, at *11.
In relevant part, petitioners argued that a plain reading of section 183(b) supports treating it as an above-the-line deduction. See MPSJ, pages 6-8. In its memorandum opinion, the Court analyzed the text of the relevant Code provisions-sections 62(a), 63(d), 67, and 183(b)--and concluded that section 183(b) is a miscellaneous itemized deduction (i.e., not an above-the-line deduction). See Gregory v. Commissioner, T.C. Memo. 2021-115, at *8-12.
In their motion for reconsideration, petitioners aver that the Court should follow the reasoning of Hill v. Commissioner, T.C. Summary Op. 2006-20, with respect to sections 67 and 183, or should hold that expenses deductible under section 183(b)(2) are akin to expenses deductible under section 212.
Discussion
I. Petitioners Do not Meet the Standard for Reconsideration
Under Rule 161, reconsideration is intended to correct substantial error, either of fact or law, and also facilitates the introduction of new evidence the moving party could not have previously introduced with due diligence. See, e.g., Estate of Quick v. Commissioner, 110 T.C. 440, 441 (1998). However, reconsideration is not the appropriate forum for rehashing previously rejected legal arguments or tendering new legal theories to reach the end result desired by the moving party. See id. at 441-442. Deciding whether to grant a motion for reconsideration lies within the discretion of the Court. See CWT Farms, Inc. v. Commissioner, 79 T.C. 1054, 1057 (1982). Absent substantial error or unusual circumstances, this Court will not grant a motion for reconsideration. See Estate of Quick, 110 T.C. at 441.
We conclude that reconsideration is inappropriate; petitioners' argument regarding Hill v. Commissioner is simply a repackaging of their theory that section 183(b) is an above-the-line deduction, which was previously rejected by the Court, and their argument with respect to section 212 is a new one tendered to reach the end result petitioners' desire. See Estate of Quick, 110 T.C. at 441-442.
A. Petitioners' Above-the-Line Theory Was Previously Raised and Rejected by the Court
In their MPSJ, petitioners argued that section 183(b) is an above-the-line deduction, i.e., not an itemized deduction. See MPSJ at pages 8, 9, and 11. In their motion for reconsideration their above-the-line theory now takes the form of their reliance on Hill v. Commissioner, T.C. Summary Op. 2006-20, a summary opinion which is not precedential. See sec. 7463(b). We agree with respondent that petitioners' reliance on Hill and associated arguments regarding Brannen v. Commissioner, 78 T.C. 471 (1982) and section 62, are a rehash of their arguments that section 183(b) is an above-the-line deduction.
For example, at page 9 of their MPSJ petitioners state, "A long line of precedents of this Court and others have treated deductions for activities not engaged in for profit under [s]ection 183 as 'above the line' deductions used to calculate adjusted gross income."
For example, at page 3 of their motion petitioners state, "In other words, the Hill Court treated Section 183 as an offset to gross income the way costs of goods sold or any other trade or business expense would be treated under Section 62(a)".
The Court considered and rejected petitioners' above-the-line arguments in its textual analysis of sections 62(a), 63(d), 67, and 183. See Gregory v. Commissioner, T.C. Memo. 2021-115, at *8-12. With respect to a plain reading of section 183 we stated,
The Gregorys misleadingly claim that the plain language of section 183(b)(2) supports their view that it is an above-the-line deduction, placing particular emphasis on the language in section 183(b)(2) capping the amount of the deduction to gross income derived from the underlying activity (less the deduction(s) allowable by reason of section 183(b)(1)). We find this line of argument unpersuasive.
The language they point to in support of their argument concerns only the maximum permissible amount of the deduction. It does not instruct taxpayers to apply the deduction itself against gross income for purposes of calculating [adjusted gross income].Gregory v. Commissioner, T.C. Memo. 115, at *11.
The Court cannot permit petitioners to relitigate this theory through Rule 161. To do otherwise would condone "rehashing previously rejected legal arguments". See Estate of Quick, 110 T.C. at 441-442.
In their motion, petitioners quote from Judge Whitaker's dissent in Brannen, 78 T.C. at 521-522. We note that the Court's majority opinion--not the dissent--was affirmed by the Court of Appeals. Brannen v. Commissioner, 722 F.2d 695, 706 (11th Cir. 1984). We are mystified as to why petitioners' motion did not identify the quote as one drawn from a dissent. In any event, as respondent notes, the Tax Court and Court of Appeals opinions in Brannen (filed March 30, 1982 and January 9, 1984, respectively) pre-date the enactment of sec. 67. See Tax Reform Act of 1986, Pub. L. No. 99-514, sec. 132, 100 Stat. 2113.
Petitioners suggest that the Court's conclusion is based upon section 183's enumeration under Part VI, Itemized Deductions for Individuals and Corporations of Subchapter B, Computation of Income, in contravention of section 7806. Petitioners mischaracterize the Court's reasoning. Though we did reference the heading under which section 183 is enumerated, such reference was made in the context of confirming our textual analysis in the "broader statutory scheme". See Gregory v. Commissioner, T.C. Memo. 2021-115, at *8. We doubled down on our textual analysis when we stated, "…nothing in the text of section 183 or another provision of the Code suggests otherwise". See id., at *8-9.
B. Petitioners' Theory that Section 183(b) Expenses are Akin to Expenses Deductible under Section 212 Constitutes a New Theory Tendered to Reach the End Result they Desire
In their motion, petitioners assert that expenses deductible under section 183 are like expenses deductible under section 212. In its objection, respondent notes that the motion is the first time petitioners have made this argument, which makes it inappropriate for a motion for reconsideration. We agree.
Petitioners did not argue that expenses deductible under section 183 are akin to those deductible under section 212 in their MPSJ, their reply to respondent's response, or in the subsequent response that the Court ordered. Consequently, we find that it is precisely the type of new legal theory Estate of Quick instructs us to reject when considering a motion for reconsideration.
To reflect the foregoing, it is
ORDERED that petitioners' Motion for Reconsideration (docket entry no. 49), filed on October 28, 2021, is denied.