1999 Tax Ct. Memo LEXIS 152">*152 Decisions will be entered under Rule 155.
MEMORANDUM OPINION
1999 Tax Ct. Memo LEXIS 152">*153 PAJAK, SPECIAL TRIAL JUDGE: This case was heard pursuant to section 7443A(b)(3) and Rules 180, 181, and 182. All section references are to the Internal Revenue Code in effect for the years in issue. All Rule references are to the Tax Court Rules of Practice and Procedure.
Respondent determined the following deficiencies and accuracy-related penalties:
Accuracy-related Penalty
Year Deficiency Sec. 6662(a)
____ _______________ ________________________
1994 $ 1,095 $ 219
1995 1,050 210
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The issues we must decide are: (1) Whether the activity of petitioner Paul F. Dickie (petitioner) as a musician was an activity "not engaged in for profit" within the meaning of
Some of the facts have been stipulated are so found. Petitioner1999 Tax Ct. Memo LEXIS 152">*154 filed a joint income tax return for 1994 in his name and that of his deceased wife, Saundra G. Dickie (Saundra). Petitioner resided in Prior Lake, Minnesota, at the time his petition was filed. Petitioner filed a joint income tax return for 1995 with his wife Sherry L. Dickie (Sherry). Petitioner and Sherry resided in Prior Lake, Minnesota, at the time their petition was filed.
During 1994 and 1995, petitioner was employed full time as a quality engineer with Illbruck, Inc. (Illbruck). Petitioner's 1994 and 1995 Forms W-2, Wage and Tax Statement, from Illbruck, showed that petitioner earned wages in the amounts of $ 52,169.45 and $ 49,046.00, respectively. On petitioner's 1994 Form 1040, U.S. Individual Income Tax Return, petitioner reported on line 7, wages, salaries, tips, etc. in the amount of $ 52,169. Sherry's 1995 Form W-2 from Speak The Word Church and World Outreach showed that she earned $ 29,355.28. On petitioners' 1995 Form 1040, U.S. Individual Income Tax Return, petitioners reported on line 7, wages, salaries, tips, etc. in the amount of $ 78,401.
During 1994, petitioner was married to Saundra. In late February or early March 1994, after about 18 months in remission, 1999 Tax Ct. Memo LEXIS 152">*155 Saundra's breast cancer recurred. Petitioner and Saundra sought alternative medical therapy. In 1994, petitioner and Saundra paid Natural Wellness $ 3,018 for consultation and dietary "supplements". Natural Wellness was operated by Frank Charles. Saundra died in August 1994.
Petitioner also is a musician. He began taking music lessons when he was about 8 years old. Petitioner plays the trumpet, keyboards, and guitar. During the taxable years at issue, petitioner played electric and acoustic guitars with the choir of Speak the Word Church and World Outreach (the Church) located in Golden Valley, Minnesota. The choir, known as Positive Reaction, consisted of approximately 30 members, which included 18 singers, 8 musicians, and 4 or 5 technical assistants. On average, petitioner claimed he rehearsed with Positive Reaction approximately 8 to 10 hours per week, and by himself in his home studio approximately 5 to 6 hours per week. Petitioner had no contractual relationship with Positive Reaction or the Church.
Positive Reaction's repertoire consisted solely of contemporary Christian music, "some rock, some country, some rhythm and blues." Positive Reaction has performed in a number of places1999 Tax Ct. Memo LEXIS 152">*156 including Orlando, Florida, Tulsa, Oklahoma, and areas in the Twin Cities. The group played "mostly" in Golden Valley. Positive Reaction has received local and national media attention.
Positive Reaction recorded its music through High Praise Productions (High Praise), a recording studio located at the same address as the Church. Also, High Praise marketed Positive Reaction's music through Christian bookstores, catalogues, radio, and television. High Praise produced three compact discs on which petitioner was acknowledged as a contributing guitarist. Petitioner also was acknowledged as a contributing guitarist on a compact disc with a 1996 copyright date, featuring Kevin Stevens and copyrighted by Fresh Rain Music.
On the 1994 and 1995 Schedules C, Profit or Loss From Business, petitioner identified his principal business or profession as musician, and listed his business name as "Positive Reaction". For 1994 and 1995, petitioner reported $ 600 and zero in gross income, $ 4,286 and $ 6,925 in expenses, and a net loss of $ 3,686 and $ 6,925, respectively.
On the 1994 Schedule C for Shaklee Sales, petitioner claimed $ 3,018 in expenses for supplies and a net loss for that business of1999 Tax Ct. Memo LEXIS 152">*157 $ 10,663.
In the notices of deficiency, respondent determined that petitioner's activity as a musician was not an activity engaged in for profit under
Deductions are a matter of legislative grace.
The taxpayer must show that he engaged in the activity with the actual and honest objective of making a profit.
Petitioner carried on his music activity in a nonbusiness like manner. Petitioner claimed various expenses including car and truck expenses, depreciation, and supplies. Petitioner admitted that he failed to maintain any books or records, or a separate business bank account. There also is no evidence that petitioner carried on the activity in a manner similar to other activities of the same nature which are profitable.
Although petitioner testified that he attempted to promote his music activity by handing out compact discs, on which he was listed as a contributing guitarist, to some people in the music industry, petitioner did little else to promote or advertise his availability as a musician for hire. Indeed, petitioner admitted that he did not advertise in the local telephone directory, distribute flyers, or 1999 Tax Ct. Memo LEXIS 152">*160 obtain business cards. Petitioner was not a member of any musicians' union. Petitioner made no reasonable efforts to gain recognition as a musician playing Christian music for hire.
There is no credible evidence that petitioner consulted with experts in the music industry in an effort to further his music career.
Notwithstanding petitioner's contention that he expended a fair amount of time and effort in his music activity, we note that petitioner was employed full time as an engineer, operated a sales business in 1994, rendered personal care to Saundra who was fatally ill in 1994, and raised his children during the years in issue. We are not convinced that petitioner devoted as much time to his music activity as he claimed he did.
The record also does not establish that petitioner was successful in his music activity. For 1994 and 1995, petitioner reported losses in the amounts of $ 3,686 and $ 6,925, respectively. Although petitioner reported gross income in the amount of $ 600 in 1994, petitioner reported related expenses1999 Tax Ct. Memo LEXIS 152">*161 in the amount of $ 4,286. During 1994 and 1995, the Forms 1040 reported wages in the amounts of $ 52,169 and $ 78,401, respectively. This helps to persuade us that petitioner's music activity was only a hobby.
We do not doubt petitioner's desire to "make it big enough in the music business to make that a full-time profession." However, viewing the record as a whole, we are satisfied that petitioner's music activity was an activity not engaged in for profit within the meaning of
We must next decide whether petitioner is entitled to a deduction in the amount of $ 3,018 under
The parties stipulated that petitioner paid Natural Wellness $ 3,018.29 with 11 checks in 1994, which were put in evidence. Petitioner explained that this amount represented the cost of consultations and dietary supplements. Petitioner testified that Natural Wellness was operated by Frank Charles, a "naturopathic doctor" who practiced in Excelsior, Minnesota. Naturopathy is a system of treatment of disease emphasizing assistance to nature and sometimes including the use of natural medical substances such as herbs, vitamins, and salts, and certain physical means, such as manipulation1999 Tax Ct. Memo LEXIS 152">*163 and electrical treatment. Webster's Third New International Dictionary 1508 (unabridged) (1993).
Respondent argues that because the treatments provided through Natural Wellness were not prescribed by a medical doctor, and were not covered by an insurance company, the payments for such treatments are not deductible under
The cases, the rulings, and the regulations make clear that
whether a service for which an expenditure is made constitutes
medical care will depend upon its therapeutic nature to the
individual, and not upon the title of1999 Tax Ct. Memo LEXIS 152">*164 the person rendering the
service, or whether the expense is "medical" to all persons, or
the general nature of the institution in which the service is
rendered. [Fn. refs. omitted.]
This broad view of medical care allows medical expense deductions for "nontraditional" medical care. Cf.
But we are not persuaded on this record that the entire amount in issue was expended only for the medical care of Saundra. Using our best judgment, we allow petitioner to deduct 60 percent of the $ 3,018 or a total of $ 1,811 as medical expenses under
Finally, we must decide whether petitioners are liable for accuracy-related penalties for 1994 and 1995.
No penalty will be imposed with respect to any portion of any underpayment if it is shown that there was a reasonable cause for such portion and that the taxpayer acted in good faith with respect to such portion.
Petitioner did not keep any records of his purported music business and he did not have a separate bank account. He did not carry on this activity in businesslike fashion, as we detailed above. Other than asserting that he relied on the advice of his accountant, petitioner presented no testimony or other evidence to establish that he provided his accountant with all of the necessary information to prepare properly his returns or that he received guidance from his accountant as to the propriety of the claimed deductions. Moreover, petitioner did not call his accountant as a witness to testify about the information petitioner provided him for calculating his Federal income tax liability. We cannot assume the testimony of the absent witness would have been favorable to petitioner. Rather, the normal inference is that it would have been unfavorable.
Decisions will be entered under Rule 155.