Joseph William Sherman v. Comm., TCM 2023-63
This post is part of our series on recent important tax cases that may be of interest to accounting, tax, and finance professionals. For more like this, see our Federal Tax Update and California Federal Tax Update, which offer a comprehensive analysis of the year’s most pivotal tax developments.
ER Doctor’s Film and Music Activity Not Engaged in for Profit (Joseph William Sherman v. Comm., TCM 2023-63)
“Doctor, doctor, please. Oh, the mess I’m in.” UFO got it right in this case. Joseph Sherman was an emergency room doctor with a side hustle “film production company that combines music and film.” In addition to working about 120 hours per month as a physician, Dr. Sherman “guesstimated” that he also spent 200 to 300 hours per month on his activity – Songswell. For 2015, Songswell generated no revenue and reported $104,758 in expenses. He was unable to produce anything other than his verbal testimony for most of his expenses. Nothing for rent, meals and entertainment, or wages. His big expenses were for camera equipment and accessories, but his receipts did not match the expense amounts and many purchases were in other years.
From a mathematical standpoint – 120 hours per month as a physician and average 250 hours in Songswell would be 370 hours per month X 12 = 4,440 hours for the year. That’s 84 hours per week or over 12 hours per day, every day of the year without any days off.
The Court analyzed the nine factors in Treas. Reg. §1.183-2(b), finding that all nine weighed against the activity being engaged in for profit. The results could have been diagnosed early on in the opinion when the court assessed Dr. Sherman’s credibility, “Generally, we found Dr. Sherman’s testimony to be self-serving, and, at times, lacking in credibility and candor.”