Estate of Stuller v. United States, No. 15-1545 (7th Cir. 2016)Annotate this Case
Wilma Stuller and her late husband bred Tennessee Walking Horses. They incorporated the operation and claimed its substantial losses as deductions on their tax returns. The IRS determined that the horse-breeding was not an activity engaged in for profit, assessed taxes and penalties, and penalized them for failing to timely file their 2003 return. After paying, the Stullers and LSA, sued the government for a refund. The district court excluded the Stullers’ proposed expert. It determined that his expertise did not extend to the financial or business aspects of horse-breeding and he lacked a reliable methodology to opine on the Stullers’ intent. The court found that the corporation was not run as a for-profit business under 26 U.S.C. 183, and determined that the Stullers lacked reasonable cause for failing to timely file their 2003 tax return. The court also denied a request to amend the judgment and effectively refund taxes paid by the Stullers on rental income received from the corporation. The Seventh Circuit affirmed. The district court followed Daubert in excluding the expert and applied each factor of the regulations to the facts. Only the expectation of asset appreciation weighed in the Stullers’ favor; almost every other consideration pointed to horse-breeding as a hobby or personal pleasure.