Osteen v. Commissioner

62 F.3d 356 (1995)

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Osteen v. Commissioner

United States Court of Appeals for the Eleventh Circuit
62 F.3d 356 (1995)

Facts

Harry and Gail Osteen (plaintiffs) began a side operation breeding horses. Both worked full time, Harry as a bank executive and Gail as a registered nurse. The Osteens had designs to eventually make money by selling the horses after training and showing them, but they had not made detailed business plans. The horse-breeding operation generated substantial losses, which the Osteens claimed as business deductions on their federal income taxes. The Internal Revenue Service (IRS) (defendant) denied the losses, determining that the Osteens’ intent with the horse-breeding business was not to make a profit, and issued both a deficiency and a penalty for substantial underpayment of taxes. The Osteens filed a petition with the United States Tax Court. Regarding the underpayment penalty, the Osteens argued that even if they had underpaid, the penalty was not appropriate because the Osteens had substantial authority to believe that the deductions were proper. The Tax Court ruled in favor of the IRS as to both the deficiency and the penalty. The Osteens appealed the imposition of the penalty.

Rule of Law

Issue

Holding and Reasoning (Roney, J.)

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