Donald E. Swanson v. Comm., TCM 2023-81
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Fishing Charter Failed to Land Profit Motive Determination (Donald E. Swanson v. Comm., TCM 2023-81)
Donald Swanson was an avid fisherman, favoring Alaska for more than 30 years. After retiring in 2010 from two onshore jobs (loading cargo and driving a city bus), he established Happy Jack Charters and acquired a halibut boat. For the years in this case (2015 and 2016), the IRS asserted that the charter fishing activity was not engaged in for profit.
From 2010 through 2016 he never showed a profit, racking more than $130,000 in losses. He relied upon Square to track his income, did not have a separate business bank account, and “kept various receipts for tax purposes that he would hand to his accountant at the end of the year ‘to figure it out.’” Unsurprisingly, a bank deposit analysis revealed unreported income from the charter activity and other sources. For 2015 and 2016, he pulled in a total of 11 charters. The losses from Happy Jack were offsetting retirement, social security, and rental income. Mr. Swanson both denied some personal fishing and admitted some as well.
The Tax Court performed its usual and customary analysis of the nine objective factors in Treas. Reg. §1.183-2(b), finding eight weighing against Mr. Swanson and one being neutral.