Typically, horse tax cases involve a challenge by the IRS to the deductions taken by a horse business owner on the grounds: (1) the business is not profit-motivated, and denying the business loss offsets; and/or (2) that the business owner is not a "material participant" in his or her horse business, and therefore the deductions will be considered "passive" and be held in suspense until there is passive income to soak up the passive deductions, or (more commonly) the horseman goes out of business, and the carried-forward passive losses can be used then. There are commonly other issues as well, but one of the two issues mentioned above is usually present.

We approach each case individually. The facts of each case are unique, and we listen to you (or if you are a smart legal service consumer, we read what you have written about your own horse business). Then, we organize the facts to present your horse business in its best possible truthful light.

The horse industry has its own vocabulary, and its own mores and folkways. I understand horse businesses. I grew up in a family with a horse business. I have cleaned stalls, groomed horses, ridden horses, trained horses, bred horses, bought horses, sold horses, judged horses, appraised horses and acted as a bloodstock agent. I speak horse. I have also studied federal tax law. Early in my practice, I hired an associate who is an alumnus of the IRS Office of Chief Counsel who worked for me for two years, and then we were partners for five years in the practice of law. With a multitude of seminars attended, and experience, I learned to speak the dialect of English to which I refer as "taxspeak".

Often, problems can be readily resolved as a result of a taxpayer's representative (like me) who can speak both "horse" and "taxspeak" and who can explain why the manner of operation of a particular horse business makes sense to the representative of the IRS.

One of the best parts of the IRS is the "Appeals Office". Cases can go there either directly from audit, or after a petition has been filed in the Tax Court, if the case had not previously been to Appeals. In the Appeals Office, very often errors can be corrected. The Appeals Office can look at truthful evidence whether or not it is technically admissible in court. Sometimes the Appeals office simply corrects an erroneous determination made by the examination division.

Not every Appeals result is correct, but many errors are corrected in Appeals. Also, it is in Appeals that the IRS can consider "hazards of litigation" (i.e., the chances they have to lose the case). This discussion of "hazards" may or may not be welcome - usually if the government brings up "hazards of litigation", it means that the IRS would like to compromise by splitting the amount of tax, and reach a settlement by taking part payment. Usually they will want to settle between 80-20 in favor of the government to 80-20 in favor of the taxpayer. Still in the overwhelming majority of cases, upon presentation of appropriate proof, the IRS Appeals Office will fully concede an issue that has been wrongly determined by the examination division.  In other words, the correctness of our client's position is recognized -- the client wins.

Sometimes settlements make bitter sense. For example, if the amount in issue in $50,000 in tax, and the IRS will not concede the entire case, but they will concede 80%, some people will take the 80% concession, since they are told that it would cost more than $10,000 to try a case in Tax Court. This is sensible bottom line thinking.

In most cases, a taxpayer cannot get an award of attorneys' fees from the IRS (sometimes it is possible, and increasingly so if one knows what to do - see the article on "qualified offers" elsewhere on this site) and where settling is cheaper than trying the case and winning, I encourage people to make such deals. Still, it is always the CLIENTS' prerogative.

The decision whether or not to accept a settlement offered must always rest with the client.

Tax Court cases are usually settled, and not tried. Often, when the facts of the client's case are good, when the stipulation has been finished, expert witness reports filed, and the taxpayer is ready for trial, it is at this point that the IRS will settle. Again, the call is finally made by the client, although generally, if the IRS trial lawyer realizes that the taxpayer can win the case, and offers to concede in full, it is usually in the horse-owning taxpayer's best interest to accept the surrender, rather than fight on in Tax Court. In such settlements, the IRS usually extracts a waiver from the taxpayer from taking a shot at getting his or her attorney's fees awarded to them (which opportunity would present itself only AFTER they win the case). This is generally a very good trade for the horseman.

Of course, some Tax Court cases settle on a percentage basis just prior to trial, and not a full concession. However, in most cases where the evidence is good, a full concession is obtainable with the IRS trial lawyer in Tax Court.

Our approach to horsemen's tax cases is to handle them whenever possible in the IRS Appeals Office. In the Appeals Office, truthful evidence can be presented informally. Plus, I am an expert in horse business matters. I have been recognized in the U.S. Tax Court, and other courts as an "Expert Witness". In the IRS Appeals Office, I can relate truthful facts to the Appeals Officer that I know in my capacity as an expert, and also present the law and urge the correctness of my client's position as a lawyer. This is an efficient method.

In Tax Court, and/or other courts, I can be either the expert witness, or the lawyer, but not both in the same case.

In some cases, such as Burrow v. Commissioner T.C. Memo 1990-621, where an excellent law firm was available to try the case, I will withdraw as an attorney, and serve as an expert witness. In this way, I can testify. In Burrow, I did testify about business practices in the horse business and I appraised the herd. In that case, the farm featured a breeding program based on the successful California breeding program of the late Frank McCoy. I knew Frank McCoy and his program very well, so that case was one in which my best contribution was as an expert witness.

By contrast, in Routon v. Commissioner T.C. Memo 2002-7, I substituted into the case just before the originally scheduled trial date because the prior lawyer, although he knew tax litigation, did not know enough about horses to effectively try the case. In that case, I did try the case as an attorney, and hired appropriate expert witnesses to get certain important facts before the court.

In conclusion, we understand that each client is unique, and therefore each case is unique. We bring our experience and expertise to bear in forming a presentation of the client's case, which will display the strengths of the case to their best advantage and minimize weaknesses. The Appeals Office is customarily the best forum, since in that forum it is possible to utilize expertise in the horse business and tax law at the same time.

Sometimes cases are resolved in Appeals. Sometimes they are not. If not, our clients are not finished. We can and do try cases in Tax Court.

This factor, that we are willing and able to try cases in Tax Court is one of the ways in which our office is different from many offices. A host of lawyers, and even certain non-lawyers are admitted to practice before the United States Tax Court, and can file a petition in the U.S. Tax Court; but not many actually try cases. We do. We believe that our willingness and ability to try a case helps our clients obtain a just and fair result without having to try the case in a number of instances. Our professional colleagues working for the IRS seem to respect the fact that we will try a case rather than allow our clients' rights to be denied.

If we become involved early in a case, we frequently make a "qualifying offer" (see article), which enables our clients to recover attorneys' fees and costs (such as expert witness fees) incurred at trial, free from restrictions imposed in the past. Briefly - a "qualified offer" removes the "substantial justification" defense from the IRS. Unless there has been a "qualified offer" the IRS will escape from having to pay a taxpayer's attorneys' fees when the IRS loses a Tax Court case if the IRS can show that it was "substantially justified" in having tried the case. When the "substantially justified" defense to a motion for an award of attorneys' fees against the IRS is made, it usually wins. The "qualified offer" technique is technical, and difficult, but it places an important tool in the hands of taxpayers - specifically, if the result after trial is better for the taxpayer than the terms of the "qualified offer", then a motion against the IRS to recover the taxpayer's attorneys fees and costs of trial has a very good chance to succeed.

The bottom line is that we are committed to energetic, effective and ethical representation of our clients. We aim to resolve each matter as soon and as inexpensively as possible. Yet, we will take each matter as far as necessary, including to trial in Tax Court, as our client's best interests require.