Taxpayer failed to establish dealer status.

• Author: Wood, John W.

R and his spouse purchased three homes between 1974 and 1995 that served as their personal residences:

1. In 1974, they purchased a home in Virginia.

2. In 1977, they sold the Virginia home and purchased a home in New Jersey, which served as their personal residence until 1990.

3. In 1990, they moved into a home in Florida, which they had constructed, and listed the New Jersey residence for sale with a real estate agent. The agent rented the New Jersey residence from 1992 until 1994, when it was sold. The taxpayers remained in the Florida home until the mortgage was foreclosed in January 1996.

   In addition to the residences, the taxpayers purchased:

4. An undeveloped parcel of land in Florida in 1976, which they owned through 1996.

5. A home in South Carolina in 1986, which they sold in 1989 to finance the construction of the Florida home.

6. Two timeshares (1977 and 1987), which they owned through 1996.

   R obtained a New Jersey real estate license in 1973. He had set up a corporation (MSPR) in 1967, along with other officers, to buy large acreage and divide it into lots. MSPR was converted to a limited partnership. R was a limited partner in MSPR. during the tax years at issue; as such, he attended an annual meeting to vote on whether to sell or subdivide a property. The partnership agreement provided that no partner could take part in the management of the business or transact any business for the partnership.

   R testified that he had intended to rent the property in South Carolina rather than live there, and that he had formed a partnership with his brother and mother-in-law, who contributed $105,000 and $100,000, respectively, toward the Florida home. He also testified that an attempted sale of the undeveloped property in Florida in 1994 was initiated by the potential buyer.

   The IRS issued a deficiency notice, disallowing expenses and losses that the taxpayers had claimed on Schedule C, Profit or Loss From Business, for 1994-1996, determining that they were not in the real estate management business during those years. Specifically, the Service disallowed (1) expenses attributable to the New Jersey and Florida homes, the undeveloped land and the timeshares and (2) a loss on the sale of the Florida house.

   Legal Standards

   For a taxpayer to be carrying on a trade or business, the taxpayer must be involved in the activity with continuity and regularity with a primary purpose of income or profit; see Groetzinger, 480 US 23 (1987). "The frequency and...