Hargis v. Koskinen, No. 17-1694 (8th Cir. 2018)Annotate this Case
In 2007-2010, the Hargises bought and operated nursing homes. Bobby was the sole owner of corporations that operated the homes (Operating Corporations), which were S corporations. Brenda owned interests in companies that bought and leased the homes to the Operating Corporations (Nursing Home LLCs). The Nursing Home LLCs were partnerships under 26 C.F.R. 301.7701-3(a). All the entities had net operating losses, which the Hargises deducted on their joint tax returns for 2009 and 2010. The Commissioner issued the Hargises a notice of deficiency, disallowing their deduction of most of the nursing home losses, due to the Hargises’ insufficient basis in their companies. The Hargises owed $281,766. The Tax Court ruled for the Commissioner. The Eighth Circuit affirmed. The Tax Court correctly denied Bobby any basis in the indebtedness of the Operating Corporations, finding “no convincing evidence that any of the lenders looked to [Bobby] as the primary obligor on the loans.” The Commissioner properly calculated Brenda’s basis from the Nursing Home LLCs’ tax returns (Schedule K-1). Her deduction of their losses is limited to “the adjusted basis of [her] interest in the partnership.”
Court Description: Benton, Author, with Melloy and Grasz, Circuit Judges] Tax Court. The Tax Court did not clearly err in its findings concerning taxpayer Bobby Hargis's basis in the Operating Corporations at issue, and did not err in affirming the Commissioner's determination that certain deductions would be disallowed because the Bobby lacked a sufficient basis; nor did the Tax Court err in determining that the Commissioner had correctly determined that taxpayer Brenda Hargis had not produced sufficient evidence of her basis to shift the burden of proof to the Commissioner.