Tax Attic July 18, 2013

Jerry Coon
Jerry Coon

The fish in Michigan are tougher to catch than the fish in Canada. That’s my personal observation of fishing in Canada for 40 plus years and fishing in Michigan for 50 plus years. There are some exceptions of course. When the walleyes are biting on Saginaw Bay, the Detroit River, or Lake Erie, the catch would match the best that Canada has to offer. I have been a participant when the big lake fishery for salmon and trout of Lake Michigan was just spectacular. Canada has trouble matching the salmon and trout fishery.

In the spring, we can catch a limit of crappies on Rainbow Lake in a very short time or a nice mess of blue gills on Wabasis Lake. Canada always has Rice Lake, however, and the blue gill fishing over there is pretty hard to beat. Overall when I have gone to Canada for fishing purposes, we expect to catch fish; eat fish; and bring home our limits. On the flip side, when I go to Muskegon to fish for those big fish, I am positive we are going to catch fish. I’m an optimistic person at heart so, of course, we are going to catch fish. But it doesn’t always work that way and sometimes we work really hard for zero fish.

Because it’s tougher fishing here, we tend to have more equipment. I know my wife, Deb, doesn’t like to hear that, but there is a reason there are now three Cabelas in Michigan and one near the border in Indiana. We buy fishing equipment like it’s going out of style. Because the fishing is tougher, we are always on the look-out for the newest lures and tackle that we are forced to buy. I bring one medium-size tackle box, two trays of miscellaneous Mr. Twister type tails and jigs; and three spinning rods and reels when I go to Canada for a week of fishing. When I go to Muskegon for a day, I bring nine downrigger rods and reels, two downriggers, four planer boards, two medium-sized tackle boxes, and several trays of lures. We might have to use every bit of that equipment to get a fish or two. I guess that’s one of the reasons we keep going to Canada. All of us are nearing or into our 60’s. We know things like this don’t go on forever, but we have kept at it through thick and thin. I’m hoping that we can squeeze out a few more years of quality Canadian fishing.

The Canadians and Americans are partners when it comes to wild-life, especially the big lake fishery. There are joint stocking agreements in place that attempt to keep the fishing at a high level. In taxes, there are also agreements in place that keep a joint business operating at an acceptable level within the rules set in place by the Internal Revenue Service. Sometimes, however, two people who normally file a partnership return want to file separate sole proprietorship returns. There can be reasons that two taxpayers might not want to be taxed as a partnership. The Tax Court in Hubert M. Luna, 42 TC 1067, laid out eight factors to look at in determining whether a partnership return must be filed or if the partners can individually file claiming their own share of expenses and income. The Ninth Circuit Court of Appeals and the Tax Court have recently re-affirmed these eight factors in Holdner V. Commissioner, 110 AFTR 2d 2012-6234. Let’s go over them.

First, is there an agreement in place and do the parties follow the agreement? The agreement can be oral or written but it must be followed. Second, what are the contributions made by each party to the potential partnership? Third, how much control does each party have over income and capital and taking withdrawals from the venture? Fourth, does each party have an obligation to share in the income as well as losses of the venture? Fifth, is the business being conducted in each party’s name or in the name of the partnership? Sixth, did the partners actually file a partnership return with the IRS? Did they represent themselves to others as a partnership or as individual taxpayers? Seven, did each party to the venture keep separate accounting books or were they kept as a partnership would? Eight, did the parties each have mutual control and responsibilities over the venture? It doesn’t appear that any one factor is more important than the other. In Holdner, all parties seemed to agree that the partners met seven of the eight factors. The fourth factor indicating the sharing of income, capital, and losses was not followed. The majority of the expenses were allocated to the father. He had hundreds of thousands of unrelated income that was improperly sheltered by those expenses. The Court case changed all of that. The venture was a partnership. This is Jerry Coon signing off.



Jerry Coon is an Enrolled Agent and

a Registered Tax Return Preparer.

He owns Action Tax Service on

Northland Dr. in Rockford.

Contact Jerry through his website:

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