Kurzet v. Commissioner

In 1984, Stanley and Anne Kurzet (plaintiffs) purchased a large piece of oceanfront property in Tahiti for $1.1 million. There is no evidence that they performed economic research prior to the purchase or sought expert advice. Between 1984 and 1994, the Kurzets spent $1,760,000 to improve the property, including remodeling the house, installing solar water heating and underground utilities, dredging a boat channel, and upgrading the electrical system. The Kurzets usually visited the property twice a year for several weeks each time, spending their time there working on the improvements. The property was listed for sale in 1989 but was not sold. Stanley believed that the property had excellent potential as a hotel site and that it had appreciated to $3.7 million by 1994. However, there is no evidence that the Kurzets ever pursued development opportunities or rented out the property. The Kurzets did not maintain comprehensive records of the expenditures, nor was there any evidence to support the claimed gain in the property’s value. The Kurzets deducted the expenses related to the Tahiti property, and the commissioner of internal revenue (defendant) brought suit against them on the grounds that the deductions were impermissible. The tax court agreed, finding that the Kurzets held the Tahiti property for recreational and personal purposes, not for investment. The Kurzets appealed.