778 F2d 275 Tallal v. Commissioner of Internal Revenue

778 F.2d 275

57 A.F.T.R.2d 86-438, 86-1 USTC P 9129

Joseph J. TALLAL, Jr., Plaintiff-Appellant,

No. 85-4085.

United States Court of Appeals,
Fifth Circuit.

Dec. 16, 1985.

Peter S. Buchanan, Wade H. Hufford, San Francisco, Cal., for plaintiff-appellant.

Fred T. Goldberg, Jr., Chief Counsel, I.R.S., Henry G. Salamy, Chief, Branch # 4, Glenn L. Archer, Jr., Asst. Atty. Gen., Tax Div., Michael L. Paup, Chief, Appellate Sec., David English Carmack, Francis M. Allegra, Attys., Dept. of Justice, Washington, D.C., for defendant-appellee.

Appeal from the Decision of the United States Tax Court.

Before GEE, ALVIN B. RUBIN and W. EUGENE DAVIS, Circuit Judges.

GEE, Circuit Judge.

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This is a tax deficiency case. Appellant Tallal argues that the tax court erred in finding that Cumberland, the partnership in which Tallal was a limited partner, was not engaged in coal mining with the primary objective and intent of making a profit and therefore erred in upholding the Commissioner's assessment of a deficiency in Tallal's 1976 tax return. We affirm.


All expenses of every business transaction are not necessarily deductible under 26 U.S.C. Sec. 162(a). Before any such deduction is allowed, it must be shown that the activity or enterprise was undertaken with the dominant hope and intent of realizing a profit. Louisiana Credit Union League v. United States, 693 F.2d 525, 532 (5th Cir.1982); Hirsch v. Commissioner, 315 F.2d 731, 736 (9th Cir.1963). When the taxpayer is a member of a partnership, we have interpreted 26 U.S.C. Sec. 702(b) to require that business purpose must be assessed at the partnership level. Barham v. United States, 301 F.Supp. 43, 44-47 (M.D.Ga.1969), aff'd per curiam, 429 F.2d 40, 41 (5th Cir.1970). Accordingly, for the purpose of determining whether an expense is deductible under 26 U.S.C. Sec. 162(a), the partnership's motive controls, not an individual partner's motive for joining the partnership. Brannen v. Commissioner, 722 F.2d 695, 703-704 (11th Cir.1984); Goodwin v. Commissioner, 75 T.C. 424, 437 (1980), aff'd, 691 F.2d 490 (3d Cir.1982) (without published opinion); Madison Gas & Electric Co. v. Commissioner, 633 F.2d 512, 517 (7th Cir.1980).


Using the criteria identified in Treasury Regulation Sec. 1.183-2 for guidance, the tax court in today's case found that Cumberland lacked a bona fide profit objective. Based on this, the tax court concluded that Tallal's deduction under Sec. 162(a) was not justified. The tax court's finding of a lack of a bona fide profit objective is not clearly erroneous. Pullman-Standard v. Swint, 456 U.S. 273, 285-87, 102 S.Ct. 1781, 1788-89, 72 L.Ed.2d 66 (1982); Byram v. United States, 705 F.2d 1418, 1422-23 (5th Cir.1983).